Quarterly Report I 09/10

First quarter report for Diamyd Medical AB (publ), fiscal year 2009/2010 (www.omxgroup.com ticker: DIAM B; www.otcqx.com ticker: DMYDY)

First quarter, September 1 – November 30, 2009 • The last 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 USD 1.84 million 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 of LADA patients, which was invalidated in 2007. As part of the settlement agreement, Diamyd received SEK 11 million 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 Company's Phase II study of the Diamyd® diabetes vaccine showed a clear positive trend. • Group net sales for the first quarter was KSEK 1,285 (88). • Loss before tax for the first quarter was KSEK -17,792 (-10,406). • The Group’s liquid assets amounted to KSEK 223,628 (70,443) as of November 30, 2009. • Earnings per share after dilution for the first quarter were SEK -1.5 (-1.0). Significant events after the reporting period • A 2:1 division of shares (a split) was executed. • The Diamyd® vaccine was approved for studies in children down to three years of age in the US. • The Annual Meeting of Shareholders was held on December 11, 2009. • Diamyd announced that the Company’s partnership negotiations are at an advanced stage. CEO COMMENTS The goal is in sight At the time of writing, we have just concluded a large investigator's meeting in Jacksonville Florida, USA for the physicians and study personnel taking part in our American Phase III study, DiaPrevent. Around 100 childhood diabetes physicians and research nurses were enthusiastic participants at the meeting. Today we have approximately 25 active clinics, and representatives from roughly an equal number of clinics in the process of entering the study also attended the meeting. The potential of the Diamyd® vaccine to help children and adolescents with type 1 diabetes is raising great hopes among our physicians, and thanks to the contagious Diamyd spirit, the meeting turned out on a high note with a tremendous sense of involvement and satisfaction. In November 2009 we included the last patient in our European Phase III study, and we are working hard to fully recruit the American study as well, with the assistance of our contracted physicians, the recruitment firm Inclinix and our own American personnel, who are spreading the message among diabetes nurses and parents. After receiving approval from the US FDA to lower the age of children in the study, we began including children from the age of 10 in September. This approval was significant, since the majority of children with type 1 diabetes develop the disease between the ages of 10 and 15, and we're already seeing a sharp increase in the number of patients recruited for the study. As we have previously announced, we are in discussions with more than one potential licensing partner for Diamyd®. Our ambition remains firm – we want to build a pharmaceutical company where we market our products ourselves in the Nordic countries. Traditional licensing agreements consist of an upfront payment, several milestone payments and royalties on future sales. There are numerous contractual issues under discussion; markets and market conditions over the lifetime of the product, financing of the development program, production and development strategy. As a company we want to ensure that we enter into an agreement that produces the best value for our shareholders. Therefore the timing of the out-licensing must be weighed against the deal terms, since better terms are offered the closer the product is to market approval. Detailed due diligence processes are being conducted in conjunction with the contract discussions, where our potential partners’ experts are scrutinizing all of the aspects of our diabetes vaccine. Large companies also have long decision processes that take place in committees at higher and higher levels in the company. Coordinating these discussions with several companies takes time. Therefore our share issue last fall was important, because it allows us to negotiate without financial pressure and gives us the freedom to choose the best time to out-license. Our objective is to file for market approval for Diamyd® in 2011 – a goal that isn’t very far off now. Stockholm, January 29, 2010 Elisabeth Lindner SIGNIFICANT EVENTS DURING THE PERIOD SEPTEMBER 1, 2009 – NOVEMBER 30, 2009 The last patient was included in the European Phase III study of the Diamyd diabetes vaccine. 320 children and adolescents between the ages of 10 and 20 and recently diagnosed with type 1 diabetes have been identified and included in the Company's European Phase III study, and have received their first injection of the Diamyd® vaccine or placebo. It is estimated that the results from the study will be ready to present in the spring of 2011. The US Department of Veterans Affairs (VA) awarded a grant of USD 1.84 million to support the development of Diamyd’s Nerve Targeting Drug Delivery System (NTDDS) for Diabetic Neuropathic Pain. The two-year grant largely finances the process of taking NTDDS with glutamic acid decarboxylase (GAD) through preclinical efficacy, toxicology and biodistribution studies, production and filing of an Investigational New Drug (IND) application with the US FDA. The grant was awarded to Dr. David Fink, MD, Professor and Chairman of the Department of Neurology at the University of Michigan, a long-term collaborator doing research with Diamyd's NTDDS technology. An oversubscribed preferential rights issue brought in just over MSEK 219 before issue expenses to Diamyd. An extra shareholders' meeting at Diamyd Medical AB (publ) held October 7, 2009, decided, in accordance with the proposal put forward by the Board of Directors, to implement a new share issue of just under MSEK 220 with preferential rights for existing shareholders. The additional capital is planned to last for two years with current development program and to cover the costs that the Company anticipates incurring until results from the current Phase III program are expected to be available. The capital is also intended to strengthen the Company's bargaining position in current partnership negotiations. Subscriptions equal to a total sum of MSEK 384 was received. Diamyd executed a settlement agreement with Apoteket AB regarding a clinical study of LADA patients, which was invalidated in 2007. As part of the settlement agreement, Diamyd received SEK 11 million in compensation for the deficiencies in Apoteket's procedures and documentation that caused Diamyd to invalidate the study. Diamyd contracted Apoteket AB in 2004 for handling of blinding, randomization and labeling of the study drug for a clinical study with 160 LADA patients. As the study was unblinded and reported during summer 2007, the data was found to be inconclusive. An inspection at the pharmacy, that had handled the study drug, revealed insufficiencies in routines and documentation, which made it impossible to conclude which patients had received active drug and which patients had received placebo. The study was invalidated on these grounds. 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. Inclinix is a global patient recruitment company with extensive experience in recruiting type 1 diabetes patients in the US. They recruit using directed Internet advertising, social media, regional recruitment staff and patient referrals from clinics close to the clinics participating in the study. The Inclinix contract is performance-based and targets to enable filing for market approval in the US during 2011. The American recruitment campaign was launched in cooperation with Inclinix under the name DiaPrevent. A four-year follow-up of type 1 diabetes patients who were part of the Company's Phase II study of the Diamyd® diabetes vaccine showed a clear positive trend. In February 2009 Diamyd received approval from the Swedish Medical Products Agency to do a follow-up study on the children and adolescents with type 1 diabetes, who participated in the Phase II study with the Diamyd® diabetes vaccine that began in 2005. An initial analysis of the new data shows that four years after treatment, those patients who received the Diamyd®-vaccine and who had recently developed the disease when the study began, still have a better diabetes status than corresponding patients who received placebo. The safety data also continues to look promising, with no serious side effects associated with the treatment. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD A 2:1 division of shares (a split) was executed. As authorized by the Annual Meeting of Shareholders in December 2009, Diamyd resolved to execute a division of the Company's shares, meaning that each share was divided into two shares of the same class. The record date for the split was January 28, 2010. The last day of trading in the shares before the division was January 25, 2010 and the first day of trading in divided shares was January 26, 2010. The Diamyd® vaccine was approved for studies in children down to three years of age in the US. The US FDA approved the experimental use of the Diamyd® vaccine in children as young as 3 years of age in the TrialNet GAD study, enrolling 126 new onset type 1 diabetes patients in North America. The study, which is being conducted by an international network of leading endocrinologists and immunologists, had previously received approval to recruit recent-onset type 1 diabetes patients between the ages of 16 and 45. Annual Meeting of Shareholders, December 11, 2009. At the Annual Meeting of Shareholders, Diamyd Medical's President and CEO Elisabeth Lindner gave a retrospective view of and summarized the important events during and after the past fiscal year. The Company’s income statement and balance sheet were adopted, and the board and CEO were discharged from liability for the 2008/2009 fiscal year. Anders Essen-Möller was reelected as Chairman of the Board, and Lars Jonsson, Sam Lindgren and Henrik Bonde were reelected to the Board. Maria-Teresa Essen-Möller and Göran Pettersson were elected as new Board members. The annual meeting approved the Board’s proposed guidelines for compensation and terms of employment for the CEO and other key executives. The meeting approved the Board's proposal to amendments to the Articles of Incorporation concerning an execution of a 2:1 division of shares (i.e. a split), meaning that each share is divided into two shares, and that the summons to the shareholders' meeting is adjusted to the new regulations expected to come into force in 2010. In addition, the meeting approved the Board's proposal that the provisions concerning prior application to and right to attend shareholders' meeting are adjusted to the Companies Act. The meeting mandated the Board to decide on new share issues of a maximum total of 10 percent of the number of shares on one or more occasions before the next Annual General Meeting. In addition, the meeting approved the Board's proposal to institute an employee option program. Diamyd announced that the Company’s partnership negotiations are at an advanced stage. Diamyd Medical announced that its previously announced partnership negotiations on the out-licensing of marketing rights for the Diamyd® portfolio were at an advanced stage. Business negotiations of this type entail a large number of issues and complex relationships, so the Company cannot forecast when an agreement may be reached. -- To read the complete report, please see attached PDF, or read the report at www.diamyd.com -- For more information, please contact: Stockholm – Elisabeth Lindner, President and CEO, + 46 8 661 0026 Pittsburgh – Darren Wolfe, CEO Diamyd Inc, + 1 412 770 1310, darren.wolfe@diamyd.com

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