Annual Report 08/09

IMPORTANT EVENTS DURING THE FISCAL YEAR • Children from the age of 10 years were included and accelerated patient recruitment was initiated in the American Phase III study of the Diamyd® diabetes vaccine. • The first children were vaccinated in a prevention study with Diamyd® intended to prevent type 1 diabetes in Swedish children at high risk of developing the disease. • A study on Diamyd® was published in Europe’s leading scientific diabetes journal, Diabetologia. • Subscription for new shares supported by subscription warrant DIAM TO 2B provided a cash injection of MSEK 28. • The rights to a novel endomorphin technology which can be used to treat conditions such as diabetes pain were in-licensed. • A European Phase III study of the Diamyd® diabetes vaccine was approved in all nine countries. • The Swedish Medical Products Agency approved a follow-up study designed to follow Swedish children who were part of the Phase II study of the Diamyd® vaccine and confirm the long-term effect of the vaccine. • A pioneering prevention study of the Diamyd® vaccine was approved by the Norwegian Medicines Agency. • The US FDA approved a combination study of the Diamyd® vaccine with the purpose of restoring the ability to produce insulin in patients with type 1 diabetes. • The results of a Phase II study of Diamyd® were published in the prestigious medical journal, the New England Journal of Medicine. IMPORTANT EVENTS AFTER THE END OF THE FISCAL YEAR • The final patient was included in the European Phase III study of the Diamyd® diabetes vaccine. • The US Department of Veterans Affairs (VA) awarded a grant of MUSD 1.84 to support the development of Diamyd’s Nerve Targeting Drug Delivery System (NTDDS) for Diabetic Neuropathic Pain. • An oversubscribed preferential rights issue brought in just over MSEK 219 before issue expenses to Diamyd. • Diamyd executed a settlement agreement with Apoteket AB regarding a clinical study in LADA patients, which was invalidated in 2007. As part of the settlement agreement, Diamyd received MSEK 11 in compensation for the deficiencies in Apoteket’s procedures and documentation that caused Diamyd to invalidate the study. • An agreement was signed with patient recruitment firm Inclinix Inc. to accelerate the recruitment of patients for the US Phase III study of the Diamyd® diabetes vaccine. • A four-year follow-up of type 1 diabetes patients who were part of the Phase II study of the Diamyd® diabetes vaccine showed a clear positive trend. CEO COMMENTS After a very eventful year, Diamyd stands stronger than ever. The first of our Phase III studies of the Diamyd® diabetes vaccine is fully recruited, and this fall’s oversubscribed new share issue will allow us to focus on our operations until the European clinical results become available in the spring of 2011. But we certainly won’t be twiddling our thumbs until then. We are making an all-out effort to quickly increase the number of recruiting clinics in the US, and to enroll all of the patients also in the US Phase III study. Once all of the new clinics are on board, we can better assess when recruitment for the study will end, and thus when we will be able to obtain the US clinical results. As it becomes possible to make more solid predictions concerning the future development of the Diamyd® project, our ability to sign partnership agreements that reflect the full potential of this revolutionary treatment will increase. We are currently negotiating from a position of strength as a result of several events since autumn 2008. Our research has been met with great interest in the academic world, and has already resulted in several exciting studies initiated by research groups. We’ve had the results of our Phase II studies in type 1 diabetes and LADA published in leading scientific journals, and the long-term follow-up of the participants of the Phase II study of children and adolescents with type 1 diabetes has shown promising results. We’ve also reached a settlement agreement with Apoteket AB concerning the LADA study of 160 patients which was invalidated in 2007. Last but not least, we have financial stability after completing a new share issue, which means that we can decide on the timing and structure of a partnership agreement that is the best for our shareholders and for Diamyd. Going forward we will speed up the development of the NTDDS platform, which is being managed by our American subsidiary, Diamyd Inc. The NTDDS platform got put onto the back burner somewhat while the bulk of our resources was being focused on the Phase III studies of Diamyd®. Despite the faster pace of development, we expect the NTDDS platform to be nearly self-supporting in the future thanks to the large outside grants and orders for contract research that Diamyd Inc’s employees have landed. Moreover, in 2010 we expect the results from the Phase I study of our first NTDDS product, NP2, which may raise the entire platform to a new level. We have a great deal of work ahead of us preparing to apply for market approval and the accompanying market launch of the Diamyd® diabetes vaccine. Therefore we’ve already begun strengthening the organization so that we will be able to manage everything that needs to be done so that no time is lost on the market. It’s a joy to relate how everyone who has encountered the project catches the Diamyd enthusiasm. We see an unbelievable spirit, both at the company and among our partners, which makes everyone deliver twice what we believed was possible. Now more and more researchers, doctors, patients and both private and institutional investors are having their eyes opened to Diamyd. Nevertheless we are still relatively unknown in Sweden and abroad. The attention we receive will probably only increase in the coming year, as new advances are reported and the Phase III results for the Diamyd® vaccine approach. Perhaps ten years from now those of you reading this today will tell your audience of impressed listeners that you were there way back in 2009, before the rest of the world discovered Diamyd. Elisabeth Lindner President and CEO Diamyd Medical AB -- To read the complete report, please see attached PDF, or visit www.diamyd.com --

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