Press Release

Stockholm, August 27, 2007

Press Release, Stockholm, Sweden, and Pittsburgh, PA August 27, 2007 - Diamyd Medical AB (www.omxgroup.com, ticker: DIAM B; www.otcqx.com, ticker DMYDY).

Diamyd Medical announced today that NP2, the company's first drug candidate in its nerve targeting drug delivery system (NTDDS) gene therapy platform, will be the subject of a pre-investigational new drug (IND) meeting with the U.S. Food and Drug Administration on August 29, 2007. Pending a favorable review by the agency, Diamyd plans to file the NP2 IND application and initiate a Phase I clinical study later this year.

NP2, developed by the company's U.S. subsidiary, Diamyd, Inc., produces enkephalin locally in the targeted sensory neurons to block pain signals before they are transmitted through the spinal cord to the brain. This may significantly reduce or eliminate the need for systemic pain treatment and avoid associated side effects.

"We have made significant progress in advancing NP2, the first of several product candidates, towards the clinic in a timely and effective manner", said Michael Christini, President of Diamyd, Inc. "With NP2, we have laid the groundwork for the rapid development of additional drug candidates such as the NTDDS-GAD product to treat pain in diabetes. The ability to deliver and express gene products directly in neurons that project into the spinal cord is extremely innovative and provides Diamyd with numerous possibilities to treat pain and other peripheral nervous system diseases."

The proposed Phase I clinical trial will be conducted at the University of Michigan in Ann Arbor. Dr. David Fink, Professor and Chair of the Department of Neurology, at the University of Michigan will be the principle investigator. The trial will be designed as a dose-escalation study and is intended to test the safety of NP2. In total 12 patients who suffer from severe cancer-related pain are planned to be enrolled.

"We are very pleased with the progress of the NTDDS program in Pittsburgh since acquiring Nurel Therapeutics 18 months ago", said Anders Essen-Möller, CEO of Diamyd Medical. "Not only may the NP2 project in itself result in a major therapeutic, but shareholder value is also built with the establishment of a broad platform technology that should yield numerous product candidates for which collaborations with third parties will be sought. In addition, our Diamyd Inc. lab facilities and expertise in manufacturing and preclinical areas have been fully used to move the company's lead product, the GAD-based diabetes vaccine Diamyd^®, towards Phase III trials later this year."

About Diamyd's NTDDS Technology for Treatment of Pain
Diamyd Medical owns the exclusive worldwide license rights to a portfolio of patents for the Nerve Targeting Drug Delivery System (NTDDS). This system is based on a replication incompetent viral delivery system that can express numerous therapeutic genes. The NTDDS has a natural affinity for nerve cells. Diamyd's initial NTDDS projects are focused upon peripheral and central nervous system applications. To that end, Diamyd seeks to combine the natural biology of the NTDDS (local nerve targeting) with therapeutic agents that are naturally found in the body and have a known therapeutic effect (e.g., GAD or enkephalin for treatment of pain, and neurotrophic factors for nerve damage). Thus, Diamyd believes that NTDDS proposes a new and broad class of nervous system disease therapies.

Pain is transmitted through a series of neurons that run from the skin to the brain. Pain signaling can be inhibited in several ways using the synapse between the peripheral and central nervous systems. This synapse provides input from the skin or organs as the first order neuron. The output from this synapse, the second order neuron, is within the spinal cord and projects into the brain to complete the pain pathway.

Three main compounds, enkephalins, GABA and endomorphins, naturally regulate pain transmission at the first order synapse. All these transmitters are expressed at some level in all synapses, however, depending on location in the body and the type of pain syndrome, there are differences in their effectiveness. For example, while GABA that is produced with the help of the GAD enzyme dampens spinal cord injury pain very well, enkephalin seems particularly well suited in treating cancer pain. The three independent systems for pain relieving may also be used together to create a synergistic effect.

Diamyd's NTDDS pain products will target patients who suffer from pain caused by many diseases and conditions. In the United States, nearly one-third of the population experiences severe chronic pain at some point in life. According to the American Pain Society, only one in four patients with chronic pain receive adequate treatment. Approximately 1.7 million people in the United States and as many as 38 million worldwide suffer from moderate to severe neuropathic pain associated with back pain, diabetes, HIV/AIDS neuropathy, spinal cord injury, post herpetic neuralgia and trigeminal neuralgia. Incidence in the United States is anticipated to grow more than 5 percent annually due primarily to the greater rates of diabetes coupled with improved diagnosis. The neuropathic pain market is poorly served by current therapeutics and thus, is suitable for first-to-market products.

Disclaimer: This document contains certain "statements" relating to present understandings, future events and future performance, including statements relating to the progress, timing and completion of our research, development and clinical trials; our ability to market, commercialize and achieve market acceptance for product candidates; and our current and future strategic partner relationships. These statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Diamyd Medical undertakes no obligation to publicly update such statements, whether because of new information, future events or otherwise, nor does Diamyd Medical give any guarantees that the statements, given or implied, are correct. This document is a translation from the Swedish original. No guarantees are made that the translation is free from errors.