Quarterly Report II 12/13

Quarterly Report 2, Diamyd Medical AB (publ), fiscal year 2012/2013
(www.omxgroup.com ticker: DIAM B; www.otcqx.com ticker: DMYDY)

Reporting period December 1, 2012 – February 28, 2013

Group, including discontinuing operations

• Group net sales amounted to MSEK 0 (0.6)
• Loss before tax amounted to MSEK -6.2 (-4.2)
• Liquid assets and short term investments amounted to MSEK 367 (408) as of Feb 28, 2013
  
  

First half year, September 1, 2012 – February 28, 2013

Group, including discontinuing operations

• Group net sales amounted to MSEK 0.1 (0.6)
• Loss before tax amounted to MSEK -8.0 (-7.7)
  
  

Significant events during the reporting period

• New Board members of Diamyd Medical AB
• Recombinant influenza vaccine from Protein Sciences received FDA approval
• Diamyd Medical announced plans for a new clinical study with the diabetes vaccine Diamyd®
• At an Extraordinary General Meeting neither the Board's proposal regarding redemption of shares and stock dividend, nor an alternative shareholder proposal, reached the required majority
• Diamyd Medical’s major shareholders reached agreement and the requested Extraordinary General Meeting, which was intended to address a proposal that Diamyd Medical should enter into immediate liquidation, was cancelled
  
  

Significant events after the reporting period

• Diamyd Medical summoned to an Extraordinary General Meeting to, among other things, resolve on the restructuring of the Diamyd Group, the distribution of subsidiary and the reduction of share capital for repayment to shareholders
• Diamyd Medical was given observation status
  
  
  

CEO COMMENTS

The last few months have been very eventful for Diamyd Medical and its owners. The previously submitted request for an Extraordinary General Meeting to consider a proposed liquidation of Diamyd Medical AB was withdrawn following an agreement between the major shareholders that take account of the request that the lion share of the liquidity shall be distributed to the shareholders while enabling the continued development of the diabetes vaccine Diamyd®. As a consequence of the agreement the Board last week summoned to another Extraordinary General Meeting of Diamyd Medical to resolve on several key issues concerning the future of the company as well as the operations within diabetes.

The wholly owned subsidiary Diamyd Therapeutics AB will be distributed to the shareholders and assume the mother company’s name, Diamyd Medical AB. This company will retain a cash position of approximately SEK 50 million and own the existing diabetes operations, including all rights to the diabetes vaccine Diamyd®, as well as the holdings in the US gene therapy company Periphagen. The shares in this new company will be listed and the company will have Series A shares and Series B shares in the same manner that Diamyd Medical AB has today.

Following the distribution of the subsidiary to the shareholders it is proposed that the remaining company, i.e. the current mother company Diamyd Medical AB, is renamed Mertiva AB. Mertiva’s assets will comprise liquid assets and short term investments amounting to more than SEK 300 million, and the holdings in the US vaccine company Protein Sciences Corporation and the Swedish diagnostics company Mercodia AB. All Series A shares in the company will be converted to Series B shares and the major part of the liquid assets will be distributed to the shareholders as soon as possible. As a first step almost SEK 120 million will be distributed to the shareholders through a share redemption procedure where every fifth share is redeemed for SEK 20.

The split-up of the companies provides a more distinct investment profile. Mertiva AB, following the distribution of the liquid assets, will have as its key asset a holding of about 8 percent in the privately held Protein Sciences. The Mertiva share will be one of few listed securities in the world that offers exposure to Protein Sciences. The company is in an exciting phase. At the beginning of the year, they received FDA approval for the recombinant seasonal influenza vaccine Flublok. So far, only a limited market launch has occurred, but a full launch is planned in time for the 2013/14 influenza season.

The "new" Diamyd Medical AB will be a pure diabetes company and will initially be focused on the continued development of the diabetes vaccine Diamyd®. However, we will be open for new business opportunities in the area of diabetes. The company has solid experience of drug development and access to international medical expertise in the field of diabetes. Furthermore, in 2010 we entered into one of Sweden’s largest-ever collaboration agreements in drug development with the leading global pharmaceutical company Johnson & Johnson. Together with the entrepreneurial spirit that has always characterized the company, we have the potential to fulfill our vision – to be able to treat or prevent autoimmune diabetes through vaccination with Diamyd® and the active substance GAD.

Stockholm, March 27, 2013

Peter Zerhouni
President and CEO Diamyd Medical AB

SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
SEPTEMBER 1, 2012 – FEBRUARY 28, 2013

New Board members of Diamyd Medical AB. At the Annual General Meeting of Diamyd Medical AB on December 6, 2012, Erik Nerpin and Jonas Jendi were elected as new Board members. Anders Essen-Möller was re-elected as Chairman of the Board and Maria-Teresa Essen-Möller was re-elected to the Board. The former Board members Lars Jonsson, Joseph Janes and Christer Lindberg declined re-election.

Recombinant vaccine from Protein Sciences received FDA approval. The US Food and Drug Administration approved Protein Sciences Corporation’s vaccine Flublok for the prevention of seasonal influenza in adults 18 to 49 years of age. Diamyd Medical holds about 8 percent of the shares in Protein Sciences Corporation.

Diamyd Medical announced plans for a new clinical study with the diabetes vaccine Diamyd®. In the study Diamyd® will be tested in a unique combination with other drugs, aiming to potentiate the effect of the diabetes vaccine. Diamyd Medical has entered into an agreement with Linköping University to conduct the researcher-initiated study and the study has been approved by the Swedish Medical Products Agency.

At an Extraordinary General Meeting neither the Board's proposal regarding redemption of shares and stock dividend nor an alternative shareholder proposal, reached the required majority. The Extraordinary General Meeting on January 31, 2013 considered the Board’s complete proposal regarding redemption of shares and stock dividend, including the Board’s and the auditors' opinions and statements under the Companies Act, and the alternative proposal for the structure of the redemption procedure by the shareholder Bertil Lindkvist. None of the proposals regarding reduction of the share capital for repayment to shareholders reached the required majority pursuant to the Companies Act. As a consequence, the proposal regarding stock dividend lapsed.

Diamyd Medical’s major shareholders reached agreement and the requested Extraordinary General Meeting, which was intended to address a proposal that Diamyd Medical should enter into immediate liquidation, was cancelled. On February 8, 2013, a group of shareholders, who claimed to represent 8,883,351 Series B shares in Diamyd Medical, submitted a request for an Extraordinary General Meeting to among other things consider a proposal that Diamyd Medical AB should enter into immediate liquidation. On February 18, 2013, it was announced in a press release that a group of shareholders of Diamyd Medical AB, representing a majority of the votes in the company, has reached an agreement to distribute the parent company’s excess cash to the shareholders and to convert all shares to series B shares with equal voting power. They have further agreed that the shares in the subsidiary Diamyd Therapeutics AB shall be distributed to the shareholders and that the subsidiary shall be capitalized with approximately SEK 50 million. The company will have series A and series B shares in the same manner as Diamyd Medical AB has today. The planned Extraordinary General Meeting of Diamyd Medical AB was cancelled as a consequence of the agreement.

SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD

Diamyd Medical summoned to an Extraordinary General Meeting to, among other things, resolve on the restructuring of the Diamyd Group, the distribution of subsidiary and the reduction of share capital for repayment to shareholders. The proposed resolutions to be considered at the Extraordinary General Meeting are based on the agreement reached by a group of major shareholders in Diamyd Medical AB, which was announced in a press release on February 18, 2013.

Diamyd Medical was given observation status. On March 21, 2013, Diamyd Medical AB published a notice to attend Extraordinary General Meeting with information regarding proposal to restructure Diamyd Medical and distribution of subsidiary. The current rules of NASDAQ OMX Stockholm AB state that a listed company will be given an observation if the company plans to make extensive change in its business or organization so that the company upon an overall assessment appears to be an entirely new company. NASDAQ OMX Stockholm AB therefore decided to give observation status to the shares in Diamyd Medical AB.

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

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

Diamyd Medical AB (publ), Karlavägen 108, SE-115 26 Stockholm, Sweden. Phone: +46 8 661 00 26 Fax: +46 8 661 63 68. E-mail: info@diamyd.com. Reg. no: 556530-1420

This information is disclosed in accordance with the Swedish Securities Markets Act, the Swedish Financial Instruments Trading Act, or the requirements stated in the listing agreements.

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