Annual Report 10/11

Q1

• Results from Phase I study in cancer pain shows promising safety data and relief of chronic pain

Q2

• Recruitment for US Phase III study in type 1 diabetes is completed

• Phase II study in cancer pain is started

• University of Florida Research Foundation initiates court case against Diamyd Medical

Q3

• Results of a Phase I clinical study in cancer pain is published in the medical journal Annals of Neurology

• Peter Zerhouni is appointed President and CEO of Diamyd Medical AB

• Results are announced from European Phase III study in type 1 diabetes, which did not meet the primary efficacy endpoint of preserving beta cell function

Q4

• Diamyd Medical regains all rights and thereby the control of the diabetes therapy Diamyd® after Ortho-McNeil-Janssen Pharmaceuticals, Inc. terminated collaboration agreement

• European Phase III study in type 1 diabetes is closed and closure of a parallel US Phase III study is initiated

• TrialNet presents results from a Phase II study with the diabetes therapy Diamyd®, which did not show a statistically significant effect of the study drug

• Diamyd Medical reduces costs and shifts the development focus from type 1 diabetes to chronic pain and diseases of the nervous system

CEO COMMENTS

Diamyd Medical towards new goals
The past fiscal year has been both eventful and turbulent for Diamyd Medical. However, now that the dust has settled, the Company stands well-equipped to continue its important efforts to develop innovative pharmaceuticals for diseases for which there currently is no effective treatment option. Diamyd Medical’s portfolio includes several highly interesting drug candidates under development and an ongoing Phase II study in cancer pain, the results of which are expected during the first half of 2012. Our financing is secured and we have a lean orga- nization with valuable experience in conducting Phase III trials and landing significant collaboration agreements with major pharmaceuti- cal companies. A gratifying situation in our industry!

Phase III study did not reach expectations
The event that dominated the latter part of the fiscal year was the re- sults of our European Phase III study in type 1 diabetes with the drug candidate Diamyd®, which did not meet expectations. This was a seri- ous setback and a great sorrow for all hopeful patients, shareholders and others who had invested their time, money and great dedication for such a long time. The Company’s share fell to record-low levels and we had to rapidly reformulate our plans.

Focus on pain and neuropathy
The Company’s main focus now lies on our pain and neuropathy projects, where we have several promising drug candidates under development based on our patented NTDDS technology. The most advanced project is the drug candidate NP2 Enkephalin, which is being evaluated in a Phase II study with 32 patients who suffer from severe and chronic cancer pain. The results of this study are expected sometime between January and June in 2012. The study is important not only for the continued development of NP2 Enkephalin, but also to confirm that the NTDDS platform can deliver therapeutic sub- stances safely and effectively to selected nerve cells. This is a unique concept and, if successful, it will generate many new opportunities for treating a range of medical problems in the nervous system that are not treatable today.

Following an evaluation of the results of the ongoing NP2 En- kephalin study, the Company plans to commence clinical studies with the next NTDDS-based drug candidate, NG2 GAD, for the treatment of other types of chronic pain. At the same time, we will also initiate efforts to actively seek partners for the further development of NP2 Enkephalin and other applications of the NTDDS platform.

The last word has not been said about the diabetes therapy Diamyd®

Parallel with the development of a competitive project portfolio in pain and neuropathy, efforts continue in the analysis of all available information from the Phase III programme with the diabetes therapy Diamyd®. Intense discussion is taking place in our global diabetes- research network regarding what we have learnt and can continue to learn from all available research data, not only from Diamyd® studies but also from other companies’ attempts to develop therapies for type 1 diabetes. The next stage has not been determined yet but like many experts in the field, we remain convinced that Diamyd®, or the active substance GAD65, can thwart type 1 diabetes albeit with a different approach to that which has now been tested.

For Diamyd Medical, prevention is closest at hand as a Swedish study with Diamyd® is already ongoing with the aim of preventing type 1 diabetes in children at high risk of developing the disease. Sev- eral research groups have shown great interest in following this lead, but also in combining the Diamyd® treatment with other drugs, or to change the number of injections or dose per injection.

Strict cost control and strong cash position
After the Phase III results were presented in May, we have focused on strict cost control and have taken a number of measures to ensure that the Company’s money is used for value-creating activities. The Phase III programme with the diabetes therapy Diamyd® is almost terminat- ed and most employees in Sweden who worked with the programme have unfortunately had to leave the Company. These measures reduce the Company’s costs considerably since the Phase III programme accounted for about two-thirds of the Company’s total costs.

At the end of the fiscal year on August 31, Diamyd Medical had cash equivalents amounting to MSEK 436, corresponding to SEK 14 per share. The strong cash position means that our financing is secured for several years to come with our current development plan, but also provides us with strategic leeway. Many companies in our sector are finding it difficult to secure financing and we are conti- nously evaluating business prospects with an opportunistic view, such as acquisitions of promising development projects and companies, as well as other types of transactions.

Favorable position
To summarize, Diamyd Medical has a full agenda for the year to come. Our circumstances have changed but the Company has adapted and with our favorable starting position, we look forward to an intense and exciting year.

Stockholm, November 15, 2011

Peter Zerhouni
President and CEO of Diamyd Medical


*** To read the complete Annual Report, please see attached PDF, or visit www.diamyd.com ***

For more information, please contact:
Peter Zerhouni, President and CEO Diamyd Medical AB
Phone: 46 8 661 00 26

For press material, please contact:
Andreas Ericsson, Diamyd Medical AB
press@diamyd.com
Phone: 46 8 661 00 26

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