Quarterly Report III 10/11

Quarterly report, Stockholm, July 1, 2011

September 1, 2010 – May 31, 2011

Third quarter report for Diamyd Medical AB (publ.), fiscal year 2010/2011

(www.omxgroup.com ticker: DIAM B; www.otcqx.com ticker: DMYDY)

Third quarter, March 1, 2011 – May 31, 2011

• Group net sales for the third quarter were MSEK 19.5 (1.3)
• Profit before tax for the third quarter was MSEK -43.6 (-30.9)
• Earnings per share after dilution for the third quarter were SEK -1.5 (-1.1)

Period September 1, 2010 – May 31, 2011

• Group net sales for the period was MSEK 278.5 (2.8)
• Profit before tax for the period was MSEK 128.4 (-75.3)
• The Group’s liquid assets amounted to MSEK 441.5 (205.0) as of May 31, 2011
• Earnings per share after dilution for the period were SEK 4.4 (-2.8)

Significant events during the reporting period March 1, 2011 – May 31, 2011

• Diamyd results from Phase I clinical trial in cancer pain published in Annals of Neurology
• Diamyd replaced CEO
• Diamyd reported initial results from European Phase III trial in patients newly diagnosed with type 1 diabetes

Significant events after the reporting period

• Diamyd regained control of diabetes therapy
• Diamyd closed European Phase III study
• Diamyd initiated closure of US Phase III study
• TrialNet presented results from a study with Diamyd®
• Diamyd presented detailed results of European Phase III study
• Diamyd increased shareholding in Protein Sciences Corporation
  
  
  

CEO COMMENTS

Diamyd Medical suffered a very serious setback in the third quarter of the fiscal year. Results of the Company’s European Phase III study in type 1 diabetes did not meet the expectations and the consequences were dramatic. A very large part of the Company’s value disappeared in an instant and Diamyd’s former partner, Ortho-McNeil-Janssen Pharmaceuticals, Inc. (OMJPI), decided to return the rights to the drug candidate.

Efforts to restructure and establish the Company’s future strategy are now under way. There are still very significant values in the Company to protect, as well as ample opportunities for profitable new ventures. We have substantial liquid assets thanks to the agreement with OMJPI and several interesting candidate drugs in clinical and pre-clinical phase that use the Company’s patented NTDDS-platform to administer drugs directly to the nervous system. These projects are independent from the diabetes project. Results from the Phase II study of NP2 Enkephalin, our furthest developed NTDDS-based drug candidate, are expected around year end. The trial recruits about 32 patients with severe cancer pain. Phase I results of NP2 Enkephalin showed substantial and sustained pain relief and, consequently, we now hope that Phase II results will establish “proof of principle” for this new method of treating pain. The next NTDDS-based drug candidate in the Company’s pipeline is NG2 GAD for the treatment of diabetes pain, which is to be ready for clinical phase during 2011.

We continuously evaluate many proposals about acquisitions or cooperations with external projects and companies. Those who contact us points out our financial resources, but also our experience of pursuing, as a small company, early phase projects through late clinical phase and outlicense on good conditions. With our business model and strict cost control we have reached Phase III and Phase II with two separate technological platforms at a very low cost by pharmaceutical industry statistics. Since the Company was established in 1996, Diamyd Medical has raised approximately SEK 700 million through various share issues, and our cash and cash equivalents as per May 31 amounted to SEK 442 million. There is no lack of ideas, but it is important to be restrictive to ensure a wise use of current resources.

We have acted swiftly and determinedly to minimize the costs for the diabetes project by terminating the European Phase III study, close the parallel US Phase III study ahead of time and put the development of the manufacturing process on hold. All this, of course, within the framework of what is ethically defensible and in line with regulatory guidelines. It feels heavy to terminate skilled employees and longstanding collaborators that have worked passionately on the program and conducted its development with high quality. Still, many who are working in or in other ways are familiar with the biotech industry understand that this might happen in drug development carried out by small companies, unable to spread the risks across many projects at once.

Earlier this week, Diamyd participated in the ADA diabetes conference in San Diego, USA. We were met by considerable disappointment from doctors and researchers who, like us, had expected positive results in the Phase III study with Diamyd®. During the conference, the research organization TrialNet also presented negative results from a similar study in the US and Canada. In order to decide how we shall proceed with the diabetes project, further analyses of the data from the different trials will be required. Researchers, however, have not abandoned their belief that Diamyd®and the active substance GAD65 could be efficacious in the treatment of type 1 diabetes, for example earlier in the disease process or in combination with other drugs. Researcher-initiated and externally funded studies with Diamyd®are still being conducted. DiAPREV-IT, for example, a Swedish prevention study intended to prevent type 1 diabetes in children at high risk of developing the disease, is continuing according to plan.

As earlier announced, the University of Florida filed a lawsuit against Diamyd last quarter in the United States Federal District Court in Florida, claiming parts of the upfront payment we received last summer for the license agreement with OMJPI regarding Diamyd®. The proceedings are in an early phase and, in parallel, some negotiations are being conducted between Diamyd and the University.

After a difficult period we can start to look forward again. The fantastic spirit of Diamyd has not been lost and our hard work in important medical fields will hopefully yield future dividends both for patients and our shareholders.

Stockholm, July 1, 2011

Peter Zerhouni

Acting President and CEO, Diamyd Medical AB

SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
MARCH 1, 2011 – MAY 31, 2011 

Diamyd results from Phase I clinical trial in cancer pain published in Annals of Neurology. Results of the Phase I clinical trial evaluating the safety and efficacy of the candidate drug NP2 Enkephalin to treat intractable cancer pain were published in the medical journal Annals of Neurology.

Diamyd replaced CEO. Elisabeth Lindner left her position as President and CEO of Diamyd Medical AB on April 26, 2011. Executive Vice President and the Company’s former Senior Director Business Development, Peter Zerhouni, was appointed Acting President and CEO. Peter Zerhouni was appointed Executive Vice President on April 21, 2011.

Diamyd reported initial results of European Phase III trial with patients recently diagnosed with type 1 diabetes. In May 2011, Diamyd Medical reported that results of the Company’s European Phase III trial with the antigen-based therapy Diamyd® did not meet the primary efficacy endpoint of preserving beta cell function at 15 months, as measured by C-peptide.

SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD

Diamyd regained control of diabetes therapy. Diamyd Medical regained control of the diabetes therapy Diamyd® in June 2011 after Ortho-McNeil-Janssen Pharmaceuticals, Inc. decided to terminate the agreement that was signed by the companies in June 2010 to develop and commercialize Diamyd®.

Diamyd closed European Phase III study. The company decided not to complete the follow-up period of a European Phase III study of the antigen-based therapy Diamyd®, of which the main results did not meet the primary efficacy endpoint.

Diamyd initiated closure of US Phase III study. Following consultation with the US Food and Drug Administration (FDA), Diamyd Medical decided to suspend dosing in a US Phase III study with the antigen-based therapy Diamyd®.

TrialNet presented results from a study with Diamyd®. The results of a study with the Company’s antigen-based diabetes therapy Diamyd®, conducted by the research consortium Type 1 Diabetes TrialNet, did not show a statistically significant effect of the study drug.

Diamyd presented detailed results of European Phase III study. Diamyd reported detailed results from the Company’s European Phase III study of the antigen-based diabetes therapy Diamyd®, which, as previously announced, did not meet the primary efficacy endpoint. Patients treated with Diamyd® had on average 16.4 percent more remaining C-peptide at 15 months compared to those who received placebo. The p-value of the primary endpoint was 0.10.

Diamyd increased shareholding in Protein Sciences Corporation. Diamyd Medical announced that the Company’s convertible promissory note in the US vaccine company Protein Sciences Corporation had been converted into shares. The promissory note was accounted for as an investment of SEK 6.4 million as of November 30, 2007. After conversion of the shares, Diamyd Medical now holds about 8% of the Protein Sciences Corporation shares.


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

Disclaimer: This report is a translation from the Swedish original. No guarantees are made that the translation is free from errors.

About Diamyd Medical

Diamyd Medical is a Swedish pharmaceutical company focusing on the development of pharmaceuticals for the treatment of autoimmune diabetes and pain. The Diabetes business area consists of the antigen-based drug candidate Diamyd®for the treatment and prevention of autoimmune diabetes. The Pain business area consists of development projects that use the Company's patented NTDDS (Nerve Targeting Drug Delivery System) platform to administer drugs directly to the nervous system to treat chronic pain. A Phase II study of the candidate drug NP2 Enkephalin for cancer pain is ongoing in the US.

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.

For more information, please contact:

Peter Zerhouni, Acting President and CEO, + 46 8 661 0026

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