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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2009
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File Number 001-34267
PENWEST PHARMACEUTICALS CO.
(Exact name of registrant as specified in its charter)
     
Washington
(State or other jurisdiction of
incorporation or organization)
  91-1513032
(I.R.S. Employer
Identification No.)
     
2981 Route 22  
Suite 2  
Patterson, NY   12563-2335
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code:
(845)-878-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
:
     
Title of Each Class   Name of Each Exchange on Which Registered
     
Common Stock, par value $.001   The NASDAQ Stock Market
(Including Associated Preferred Stock Purchase Rights)    
Securities registered pursuant to Section 12(g) of the Act: None
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
     The aggregate market value of the Registrant’s Common Stock held by non-affiliates as of June 30, 2009 was approximately $52,235,000 based on the last sale price of the Registrant’s Common Stock on the Nasdaq National Market on June 30, 2009. The number of shares of the Registrant’s Common Stock outstanding as of March 10, 2010 was 31,808,790.
 
 

 


 


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PENWEST PHARMACEUTICALS CO.
EXPLANATORY NOTE
     Penwest Pharmaceuticals Co. (“Penwest”, “company”, “we”, “our” and “us”) is filing this Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) to its Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 16, 2010 (“Form 10-K”), to furnish the information required in Part III (Items 10, 11, 12, 13 and 14). This Amendment No. 1 is limited in scope to the items identified above and should be read in conjunction with the Form 10-K. This Amendment No. 1 does not reflect events occurring after the filing of the Form 10-K and, other than the furnishing of the information identified above, does not modify or update the disclosure in the Form 10-K in any way.

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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our Board of Directors
          Our board of directors is divided into three classes and currently consists of three class I directors (Christophe M. Bianchi, Paul E. Freiman and Jennifer L. Good), three class II directors (Peter F. Drake, David P. Meeker and Anne M. VanLent) and two class III directors (Joseph E. Edelman and Kevin C. Tang). The term of each class of directors is three years, and the terms of the three classes are staggered so that only one class is elected each year. At each annual meeting of shareholders, directors are elected to serve for a three-year term to succeed the directors of the same class whose terms are then expiring. The class I, class II and class III directors were elected to serve until the annual meeting of shareholders to be held in 2010, 2011 and 2012, respectively, and until their respective successors are elected and qualified. Christophe M. Bianchi, Paul E. Freiman and Jennifer L. Good are our nominees for election as directors at our 2010 annual meeting of shareholders.
          Set forth below are the names of our directors and our nominees for election as directors at our 2010 annual meeting of shareholders, their ages as of April 1, 2010, the year in which each first became a director, their positions and offices with us, if applicable, their principal occupations and business experience during at least the past five years, and the names of other public companies for which they currently serve or have served within the past five years as a director.
          We have also included information with respect to each nominee’s specific experience, qualifications, attributes and skills that led our board to conclude that such individual should serve as one of our directors. We believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They have each demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to us and our board.
          No director, director nominee or executive officer is related by blood, marriage or adoption to any other director, director nominee or executive officer. Except as described below with respect to Mr. Edelman and Mr. Tang, no director, director nominee or executive officer, or any associate of any such director, director nominee or executive officer, is a party adverse to us, or has a material interest adverse to us, in any legal proceeding.
DR. CHRISTOPHE M. BIANCHI
     Age: 48
          Christophe M. Bianchi has served as one of our directors since June 2007. Dr. Bianchi is currently Executive Vice President, Commercial Operations at Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited. Dr. Bianchi has held this position since he joined Millennium in 2006. Prior to joining Millennium, Dr. Bianchi served in a variety of positions at Sanofi-Aventis, a pharmaceutical company, including from 2004 to 2006 as the head of the U.S. oncology business unit of Sanofi-Aventis, and from 2001 through 2004 as Vice President of the Internal Medicine and Central Nervous System Business Unit of Sanofi. Dr. Bianchi received an M.D. from the University of Reims-Champagne in France and an M.B.A. from the Wharton School at the University of Pennsylvania. He is also a graduate of Ecole Des Hautes Etudes Commerciales (EDHEC Graduate School of Management) in France. Dr. Bianchi has substantial experience and expertise in the pharmaceutical industry and, in particular, experience and expertise with respect to the development and commercialization of pharmaceuticals. Based on this, he provides significant insight and perspective to our board regarding relationships with pharmaceutical companies and their efforts in the development and commercialization of our products, as well as extensive contacts for the Company in its business developments efforts. Dr. Bianchi also has a medical background which is valuable to our board.
DR. PETER F. DRAKE
     Age: 56
          Peter F. Drake has served as one of our directors since April 2005. Dr. Drake is currently the Managing General Partner of Mayflower Partners, a healthcare investment fund. From 2002 until December 2009, Dr. Drake served as the General Partner of Vector Fund Management, LP, a venture capital firm. From 1999 to 2002, he served as a Managing Director in the Equity Research Department of Prudential Securities, Inc., following Prudential’s acquisition of Vector Securities International, an investment banking firm co-founded by Dr. Drake in 1988. He currently serves on the board of directors of Trustmark Insurance Co., a healthcare insurance provider, and Cortex

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Pharmaceuticals, Inc., a neuroscience company, and Rodman & Renshaw, an investment bank. Dr. Drake received a B.A. in Biology from Bowdoin College, and a Ph.D. in Biochemistry and Neurobiology from Bryn Mawr College. Dr. Drake brings strong strategic, financial and investment skills and experience to our board of directors. Over his years on our board, Dr. Drake has provided significant contributions to our discussions regarding financing options, strategic transactions and the strategic direction of Penwest. Dr. Drake also has many strong relationships in the industry that have been useful in our business development efforts.
JOSEPH E. EDELMAN
     Age: 54
          Joseph E. Edelman has served as one of our directors since June 2009. Mr. Edelman is the Chief Executive Officer and Portfolio Manager of Perceptive Advisors LLC, an investment firm focused on health care with a particular emphasis on biotechnology companies. He founded the firm in 1999. Prior to that he was Senior Analyst at Paramount Capital from 1994 to 1999, and was the Senior Biotechnology Analyst at Prudential Securities from 1990 to 1994. Mr. Edelman received his B.A. in Psychology from the University of California, San Diego, and an M.B.A. in Marketing from New York University. Mr. Edelman serves on our board to reflect the perspective of one of our two largest shareholders, Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman has informed us that the Securities Exchange Commission, which we refer to as the SEC, and the Financial Industry Regulation Authority, which we refer to as FINRA, conducted inquiries into various short sales that were placed by Mr. Edelman and others associated with Perceptive Advisors LLC in 2005 and 2006 on behalf of a broker-dealer that Mr. Edelman was associated with during such time and Perceptive Life Sciences Master Fund Ltd. Mr. Edleman has informed us that FINRA Matter No. 20050007960 was resolved on or about December 18, 2008 pursuant to the terms of a letter of acceptance, waiver and consent entered into by Mr. Edelman and other persons, including persons associated with Perceptive Advisors LLC. Pursuant to the letter of acceptance, waiver and consent, Mr. Edelman agreed to the payment of a fine in the amount of $50,000, which amount was paid by Mr. Edelman from the assets of Perceptive Advisors LLC. Mr. Edelman has informed us that fines in lesser amounts were imposed against some of the other parties associated with Perceptive Advisors LLC, and that none of these fines were paid by Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman has informed us that, on October 20, 2009, an inquiry conducted by the SEC’s New York Regional Office concerning primarily the same secondary offerings that were the subject of the letter of acceptance, waiver and consent was formally resolved. Pursuant to the order issued in connection with the resolution, Perceptive Advisors LLC agreed to disgorge profits and pay pre-judgment interest in the aggregate amount of $314,755.26 and to pay a fine of $125,000. Mr. Edelman has informed us that these amounts have been paid by Perceptive Advisors LLC and were not paid by Perceptive Life Sciences Master Fund Ltd.
Mr. Edelman, through his relationship with Perceptive, is associated with the following legal proceeding which is adverse to the Company. On April 20, 2009, Tang Capital and Perceptive brought suit against us in the Superior Court of the State of Washington, King County, (Tang Capital Partners, et al. v. Penwest Pharmaceuticals Co.), seeking to enforce their alleged rights under the Washington Business Corporation Act to inspect certain Company documents (the “King County Action”). In addition, on April 28, 2009, Tang Capital and Perceptive brought suit against us in the Superior Court of the State of Washington, Thurston County (Tang Capital Partners, et al. v. Penwest Pharmaceuticals Co.), seeking either for the court to set the number of directors to be elected at our 2009 annual meeting of shareholders at three rather than two, or for the court to require us to waive the advance notice provisions of our bylaws to permit Tang Capital and Perceptive to include a proposal in the proxy statement in which the required percentage for board approval of certain matters would be 81% or more, rather than 75% or more (the “Thurston County Action”). On May 13, 2009, Tang Capital and Perceptive dismissed this Thurston County Action reasserting the same claims via an amended complaint in the King County Action. Tang Capital and Perceptive sought preliminary injunctive relief on their claims prior to our 2009 annual meeting of shareholders and the motion was denied by the court on May 22, 2009. Although the King County Action remains pending, the proposed bylaw amendment and bylaw proposal were not approved by our shareholders at our 2009 annual meeting of shareholders. The trial of the King County Action is currently scheduled for October 4, 2010.
PAUL E. FREIMAN
     Age: 75
          Paul E. Freiman has served as our Chairman of the Board since February 2005 and served as our Lead Director from 1997 to 2005. Mr. Freiman is president of ThirdAge Pharma LLC, a consulting firm that he founded in January 2009. Mr. Freiman served as the Chief Executive Officer and President of Neurobiological Technologies, Inc., a biotechnology company, from May 1997 to December 2008. Mr. Freiman is also a director of Calypte Biomedical Corporation, a developer of in vitro testing solutions, NeoPharm Inc., a biotechnology company, NovaBay Pharmaceuticals, Inc., a pharmaceutical company, and Otsuka America Pharmaceuticals Inc., a pharmaceutical

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company. He is a graduate of Fordham University with a B.S. in Pharmacy and received an honorary doctorate from the Arnold & Marie Schwartz College of Pharmacy. Mr. Freiman has a strong commercial background as well as tremendous insight into the drug development process and the scientific, operational and regulatory aspects of clinical trials. Mr. Freiman is a veteran of the industry, serving as chairman and chief executive officer of both a major pharmaceutical and a biotechnology company and brings unique insights and understanding of the company’s challenges, strategy and operations. Mr. Freiman is our longest serving board member, providing board leadership for 13 years and has extensive knowledge of our business. His leadership skills, consensus building skills and focus on corporate governance have been critical to the operations of our board over the years, particularly through the management transitions and changes in directors that we have experienced.
JENNIFER L. GOOD
     Age: 45
          Jennifer L. Good has served as one of our directors and as our President and Chief Executive Officer since June 2006. Ms. Good served as our President, Chief Operating Officer and Chief Financial Officer from November 2005 to June 2006, and Chief Financial Officer from February 1997 to November 2005. Ms. Good received a Bachelor of Business Administration degree from Pacific Lutheran University and is a Certified Public Accountant licensed by the state of Washington. Ms. Good has served the company as its Chief Financial Officer, Chief Operating Officer, President, Chief Executive Officer and, since the departure of the Chief Financial Officer in January 2009, acting again as our principal financial officer. Ms. Good also has a strong financial background and experience in raising capital and in business development. Based on this experience, Ms. Good has a unique understanding of our company and our operations, strategy, challenges and risks. She is critical to our relationships with Endo Pharmaceuticals Inc. (Endo), Edison Pharmaceuticals Inc. (Edison) and Otsuka America Pharmaceutical, Inc. (Otsuka) and has demonstrated her leadership skills as she kept our management team and employees motivated during a time with significant external pressures and a number of employee reductions
DR. DAVID P. MEEKER
     Age: 55
          David Meeker has served as one of our directors since January 2007. Dr. Meeker has served in various roles at Genzyme Corporation, a pharmaceutical company, since 1994, including as Chief Operating Officer since March 2010, Executive Vice President, Therapeutics, Biosurgery, and Transplant from March 2008 to March 2010, President of the LSD (Lysosomal Storage Diseases) Therapeutics business unit from March 2003 through March 2008, Senior Vice President, Therapeutics Europe from May 2000 to March 2003 and as Senior Vice President, Medical Affairs from June 1998 to May 2000. Dr. Meeker is a Fellow at the American College of Physicians and the American College of Chest Physicians. He attended Dartmouth College and received an M.D. from The University of Vermont. Dr. Meeker’s experience in the industry, his executive leadership skills, his work with orphan drugs and in rare disorders, his scientific and medical background and his understanding of clinical development provide Dr. Meeker with a unique understanding of our A0001 program and other development programs. Dr. Meeker also serves an important role as a liaison with management regarding clinical and technical matters.
KEVIN C. TANG
     Age: 43
          Kevin C. Tang has served as one of our directors since June 2009. Mr. Tang is the Managing Director of Tang Capital Management, LLC, an investment firm focused on the health care industry that he founded in August 2002. From September 1993 to July 2001, Mr. Tang held various positions at Deutsche Banc Alex. Brown, Inc., an investment banking firm, most recently serving as Managing Director and head of the firm’s life sciences research group. Mr. Tang currently serves as a director of Ardea Biosciences, Inc, a biotechnology company focused on the development of small-molecule therapeutics for the treatment of gout, cancer and human immunodeficiency virus (HIV), and A.P. Pharma, Inc., a specialty pharmaceutical company. Mr. Tang received his B.S. degree in Psychology from Duke University in 1989.
Mr. Tang, through his relationship with Tang Capital, is associated with the King County Action described above, which is adverse to the Company.
ANNE M. VANLENT
     Age: 62
          Anne M. VanLent has served as one of our directors since December 1998. Ms. VanLent is president of AMV Advisors, a consulting company, providing strategic planning and financial services to emerging growth life sciences companies, which she founded in 2008. Ms. VanLent served as Executive Vice President and Chief Financial Officer

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of Barrier Therapeutics, Inc., a NASDAQ-listed specialty pharmaceutical company in the field of dermatology, from May 2002 to May 2008. Prior to joining Barrier, Ms. VanLent served as a principal of The Technology Compass Group, LLC, a healthcare/technology consulting firm, which she founded in October 2001. From mid-1997 to October 2001, Ms. VanLent served as Executive Vice President, Portfolio Management of Sarnoff Corporation, a privately-held research and development company that creates and commercializes electronic, biomedical and information technologies. Ms. VanLent currently serves as a director and chair of the audit committee of Integra LifeSciences Holdings Corporation, a NASDAQ-listed medical technology company. Ms. VanLent received a B.A. in Physics from Mount Holyoke College. Ms. VanLent’s experience and expertise in the pharmaceutical industry and experience in strategic financial management are valuable to our board. Ms. VanLent plays a crucial role on the board by virtue of her understanding of corporate governance matters and through her service as chair of the Audit Committee and Nominating and Corporate Governance Committee. Ms. VanLent is diligent in keeping the board abreast of current audit issues and collaborating with our independent auditors and management team.
Information about our Executive Officers
     The following table sets forth the names, ages and positions of our executive officers as of April 1, 2010.
                 
Name   Age   Title   Dates
Jennifer L. Good
    45     President and Chief Executive Officer   2006 — current
 
          President, Chief Operating Officer and Chief Financial Officer   2005 — 2006
 
          Senior Vice President, Finance and Chief Financial Officer   1997 — 2005
 
               
Anand R. Baichwal, Ph.D.
    55     Senior Vice President, Licensing and Business Development   2006 — current
 
          Senior Vice President, Research & New Technology Development and Chief Scientific Officer   1997 — 2006
 
               
Amale Hawi, Ph.D.
    56     Senior Vice President,
Pharmaceutical Development
  2007 — current
 
          President, A. Hawi Consulting Ltd., a pharmaceutical development consulting practice   2002 — 2007
 
               
Frank P. Muscolo
    53     Controller and Chief Accounting Officer   2007 — current
 
          Controller   1997 — 2007
 
               
Thomas Sciascia, M.D.
    56     Senior Vice President, Clinical Development and Regulatory and Chief Medical Officer   2009 — current
 
          Senior Vice President and Chief Medical Officer   2001 — 2009
Audit Committee
     The Audit Committee is currently comprised of Ms. VanLent and Drs. Drake and Meeker. Our board of directors has determined that all of the audit committee members are independent as defined under the rules of The NASDAQ Stock Market, including the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934.
     Our board of directors has also determined that Anne M. VanLent qualifies as an audit committee financial expert. In deciding whether members of our audit committee qualify as financial experts within the meaning of the SEC regulations and the NASDAQ listing standards, our board considered the nature and scope of experiences and responsibilities members of our audit committee have previously had with reporting companies.
Code of Business Conduct and Ethics
     We have adopted a code of business conduct and ethics applicable to all of our directors and employees. The code of business conduct and ethics is available on our website, www.penwest.com , and is available without charge upon request to Corporate Secretary, Penwest Pharmaceuticals Co., 2981 Route 22, Suite 2, Patterson, New York 12563, telephone (845) 878-8400.

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     Any waiver of the code of business conduct and ethics for directors or executive officers, or any amendment to the code that applies to directors or executive officers, may be made only by the board of directors. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website. To date, no such waivers have been requested or granted.
Section 16(a) Beneficial Ownership Reporting Compliance
     Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than ten percent of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Based solely on our review of copies of reports filed by the reporting persons furnished to us, or written representations from reporting persons, we believe that during 2009, the reporting persons complied with all Section 16(a) filing requirements, other than as follows:
    Mr. Freiman failed to timely file one Form 4 relating to one reportable transaction; and
 
    Mr. Drake failed to timely file one Form 4 relating to one reportable transaction.
     ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
     The compensation committee of our board of directors oversees our executive compensation program. In this role, the compensation committee reviews and approves annually, all compensation decisions relating to our executive officers.
Objectives and Philosophy of Our Executive Compensation Program
     The primary objectives of our executive compensation program are to:
    attract, retain and motivate the best possible executive talent;
 
    ensure executive compensation is aligned with our corporate strategies and business objectives, including our short-term operating goals and longer-term strategic objectives;
 
    promote the achievement of key strategic, financial and operational performance measures by linking short-term and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and
 
    align our executives’ incentives with the creation of shareholder value.

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     To achieve these objectives, the compensation committee evaluates our executive compensation program with the goal of setting compensation for our executive officers at levels that the committee believes are competitive with other companies in our industry and our region that compete with us for executive talent. In addition to base salary, our executive compensation program ties a substantial portion of each executive’s overall compensation to key company strategic, financial and operational goals, such as new product development initiatives, clinical trial and regulatory progress, intellectual property portfolio development, establishment and maintenance of key strategic relationships, and exploration of business development opportunities, as well as our financial and operational performance as measured by adherence to operating budgets approved by our board of directors. We also seek to use our executive compensation program to retain our executives by granting them stock options and allowing them to participate in the long-term success of our business, as reflected in stock price appreciation, thus aligning their interests with those of our shareholders.
     In making compensation decisions, the compensation committee compares our executive compensation to the executive compensation paid by a peer group of companies that the committee believes have business operations, market capitalizations, numbers of employees, revenues and growth profiles that are comparable to ours. The compensation committee reviews the foregoing factors relating to the peer group companies as necessary to determine whether any adjustments to the composition of the peer group should be made. As a result, our peer group might change from year to year.
     The compensation committee worked with our senior management in 2009 and 2010 to determine the peer group to use to compare executive compensation programs. The peer group that the compensation committee used for compensation decisions made in February 2009 consisted of: Acorda Therapeutics, Adolor Corp., Anadys Pharma, Anesiva Inc., Antares Pharma, Aradigm Corp., Depomed Inc., Durect Corp., Epicept Corp., Jazz Pharma, Nastech Pharma, Neurocrine Bisoscience, Repligen Corp., Scolr Pharma Inc., and Targacept Inc. In connection with the compensation decisions made in February 2010, the compensation committee used an adjusted peer group that consisted of: Adolor Corp., Anadys Pharma, Ardea Biosciences, Inc., Antares Pharma, Aradigm Corp., CombinatoRx, Incorporated, Depomed Inc., Durect Corp., Epicept Corp., Jazz Pharma, Ligand Pharmaceuticals, Inc., Neurocrine Bisoscience, Repligen Corp., Scolr Pharma Inc., and Targacept Inc.
     The compensation committee also considers industry survey data regarding executive compensation to understand industry compensation practices. In both February 2009 and February 2010, the compensation committee supplemented data regarding the peer group of such year with survey data from the Radford Biotechnology Survey.
     In making compensation decisions, the compensation committee generally targets compensation for executives at the 50th percentile. The committee intends that if an executive achieves the individual and company performance goals determined by the committee, then the executive should have the opportunity to receive compensation that is competitive with peer group and industry norms. The committee, however, may vary this general target with respect to executives based on other factors including individual contribution and performance, reporting structure, complexity and importance of role and responsibilities, leadership and growth potential.
     In evaluating individual contribution and performance, reporting structure, complexity and importance of role and responsibilities, leadership and growth potential for executives other than the chief executive officer, the committee seeks the advice of our chief executive officer. Our chief executive officer meets with the committee to review each executive and makes recommendations with respect to each element of compensation for each executive.
     Components of our Executive Compensation Program
     The primary elements of our executive compensation program are:
    base salary;
 
    annual cash incentive bonuses;
 
    stock option awards;
 
    change in control benefits; and
 
    health and life insurance, and other employee benefits.

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     We do not have any formal or informal policy or target for allocating compensation between short-term and long-term compensation, between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, the compensation committee, after reviewing industry information, determines subjectively what it believes to be the appropriate level and mix of the various compensation components.
     Base Salary
     The committee uses base salary to recognize the experience, skills, knowledge and responsibilities required of all of our employees, including our executives. Base salaries are reviewed annually by our compensation committee, and are adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. Base salaries may also be increased for merit reasons, based on the executive’s success in meeting or exceeding individual performance objectives, promoting our core values and demonstrating leadership abilities. Additionally, the compensation committee adjusts base salaries as warranted throughout the year for promotions, other changes in the scope or breadth of an executive’s role or responsibility, or other market changes.
     In January and February 2009, the compensation committee met to determine the executive officers’ base salaries for 2009. After discussion of the executive officers’ performance and market levels, as well as the other factors noted herein, the committee determined not to increase the executive officers’ base salaries for 2009. The committee made this determination based on the economic environment and concerns about our cash reserves. As a result, our executive officers’ base salaries for 2009 were as follows:
         
    Base Salary  
Executive Officer   for 2009  
Jennifer L. Good,
  $ 387,000  
President and Chief Executive Officer
       
Thomas R. Sciascia, M.D.,
  $ 310,000  
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer
       
Amale Hawi, Ph.D.,
  $ 281,600  
Senior Vice President, Pharmaceutical Development
       
Anand R. Baichwal, Ph.D.,
  $ 248,000  
Senior Vice President, Licensing and Chief Scientific Officer
       
     In February 2010, the compensation committee approved the following base salaries for our named executive officers, effective March 1, 2010.
         
    Base Salary  
Executive Officer   for 2010  
Jennifer L. Good,
  $ 410,000  
President and Chief Executive Officer
       
Thomas R. Sciascia, M.D.,
  $ 319,000  
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer
       
Amale Hawi, Ph.D.,
  $ 290,000  
Senior Vice President, Pharmaceutical Development
       
Anand R. Baichwal, Ph.D.,
  $ 258,000  
Senior Vice President, Licensing and Business Development
       
     Annual Cash Incentive Bonus Plan
     Our executive compensation program includes an annual cash incentive bonus plan for our executive officers that is intended to motivate each of them to work toward the achievement of company strategic, operational and financial targets and individual performance objectives, and to reward our executive officers when their efforts result in success for us. Bonus targets under the annual cash incentive bonus plan are calculated as a percentage of each executive officer’s base salary, with targets corresponding to the rank of the executive. The target percentages set for 2009 were 40% for Ms. Good and 30% for each other named executive officer.

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     The compensation committee approves corporate goals for each year and determines potential bonus amounts based on the achievement of these goals and individual performance goals. Our corporate targets generally conform to certain operational goals, such as advancing development programs and meeting specified financial targets. The compensation committee works with our chief executive officer to develop challenging goals that it believes can be reasonably achieved during the year and to weight the various goals for the corporate targets. Individual objectives are tied to the particular area of expertise of an executive officer and his or her role and responsibilities. Achievement of these individual objectives is measured relative to external forces, internal resources utilized and overall individual effort. Individual objectives are based on a variety of factors, including the achievement of corporate goals. The individual performance objectives for each executive officer (other than our chief executive officer) are determined by the chief executive officer. In the case of our chief executive officer, the individual objectives are reviewed with the compensation committee and are based on the achievement of our corporate goals.
     In determining the total cash payments made under the bonus plan, the committee assigns 75% weighting to the achievement of our corporate goals and 25% weighting to individual performance objectives. After the end of each fiscal year, the compensation committee reviews the corporate goals and individual objectives for the previous year and determines whether such goals and objectives were achieved and the level of achievement by each officer. Whether an executive officer has achieved his or her individual performance objectives is determined by the chief executive officer and is reviewed with the compensation committee.
     In establishing our corporate goals for 2009, the committee considered the objectives for 2009 that had been discussed with the full board and publicly announced by us. The corporate-level goals that the committee adopted for 2009 and the weighting attached to each of these goals were as follows:
2009 Goals
         
    Weighting  
Manage our cash expenditures so that our cash resources at December 31, 2009 equal at least $10 million
    15 %
Execute at least two new individual drug delivery technology agreements or a multi-drug agreement, with cash generated from these new agreements of at least $1 million in 2009 and total cash generated under all of our drug delivery technology agreements of $1.5 million in 2009
    20 %
Execute at least one licensing transaction for Opana ER that generates at least $1 million in cash in 2009
    20 %
Commence a Phase IIa clinical trial of A0001 in 2009, with data analysis expected by the end of the first quarter of 2010
    30 %
Select and acquire a back-up compound from Edison Pharmaceuticals
    15 %
     In February 2010, the committee evaluated our 2009 performance against our 2009 corporate goals and determined that 87% of the 2009 corporate goals had been achieved. In calculating the 87%:
    The committee recognized that we had exceeded our goals with respect to end of year cash and our drug delivery technology business. The Committee agreed to a credit of 20% with respect to our cash goal as our end of the year cash level (excluding proxy costs) exceeded our cash target by 28% and a credit of 27% with respect to our drug delivery technology goal as we signed two agreements in 2009 and total cash generated under our drug delivery technology agreements was 35% higher than our cash target.
 
    The committee recognized that we had achieved our goal with respect to the Edison back-up compound and agreed to a credit of 15% as we selected and acquired the compound in September 2009.
 
    The committee recognized that we had partially achieved our A0001 clinical goal and agreed to a credit of 10% in recognition of the progress made in this program during 2009, including the commencement of two Phase IIa proof of concept trials for A0001, including one in patients with Friedreich’s Ataxia, with data expected in the third quarter of 2010. The committee also recognized that we had partially achieved our Opana ER licensing goal as the agreement entered into with Valeant Pharmaceuticals generated less than $1 million in cash for us after sharing the proceeds with our collaborator, Endo Pharmaceuticals, and taking into account foreign currency conversion, and agreed to a credit of 15%.
     In February 2010, the committee also evaluated the individual performance of our executive officers and determined the bonus credit that would be given for individual performance objectives.

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    The committee determined to give Ms. Good the full 25% for her individual performance during 2009 in recognition of her role in negotiating and signing the Opana ER transaction with Valeant Pharmaceuticals, in working under our collaboration and licensing agreements with Endo, Edison and Otsuka and in our other 2009 business development activities and in transitioning the company to profitability, as well as for her leadership of the company during an adversarial proxy contest, including with our employees, our shareholders and our business partners.
 
    The committee determined that Dr. Sciascia had achieved his individual goal with respect to managing our cash burn and partially achieved his goals with respect to the clinical development of A0001, and based on this, determined to give him credit for 18% of the 25% for his individual performance objectives.
 
    The committee determined that Dr. Hawi had achieved her individual goals with respect to managing our cash burn, our drug delivery technology business and the selection of a back-up compound for A0001 and had only partially achieved her goals with respect to the clinical development of A0001, and based on this, determined to give her credit for 23% of the 25% for her individual performance objectives.
 
    The committee determined that Dr. Baichwal had achieved his individual goal with respect to managing our cash burn, had exceeded his goal with respect to the cash generated under drug delivery technology agreements and did not achieve his goal with respect to Opana ER transactions, and based on this and his important role in our relationship with Otsuka and in the patent area, determined to give Dr. Baichwal credit for the full 25% for his individual performance objectives.
     Based on these determinations, the committee determined the cash bonuses for 2009 as follows:
                         
            2009 Annual        
    2009 Bonus     Cash Bonus     Percentage of  
Named Executive Officer   Targets     Payments     Bonus Target  
Jennifer L. Good
  $ 154,800     $ 139,000       90 %
President and Chief Executive Officer
                       
Thomas R. Sciascia, M.D.
  $ 93,000     $ 77,000       83 %
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer
                       
Amale Hawi, Ph.D.
  $ 84,480     $ 74,000       88 %
Senior Vice President, Pharmaceutical Development
                       
Anand R. Baichwal, Ph.D.
  $ 74,400     $ 67,000       90 %
Senior Vice President, Licensing and Business Development
                       
     The committee also considered whether to modify the officers’ bonus targets for 2010 but left them unmodified upon the determination that these targets were consistent with the targeted 50th percentile. The committee did agree to revisit Ms. Good’s bonus target for 2010 following the collection of additional market data.
     Stock Option Awards
     Our equity award program is our primary vehicle for offering long-term incentives to our executives. The committee believes that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our shareholders. In addition, the vesting feature of our equity grants is intended to further our goal of executive retention because this feature provides an incentive to our executives to remain in our employ during the vesting period. In determining the size of equity grants to our executives, the compensation committee considers comparative share ownership to executives in the peer group and survey data, our company-level performance, the applicable executive’s performance, the amount of equity previously awarded to the executive, the vesting of such equity and the recommendations of management.
     We typically make an initial equity award of stock options to new executives, annual option grants as part of the overall compensation program and other option grants in connection with promotions during the year. All grants of options to our executives are approved by the compensation committee.
     Our equity awards to our executives have been in the form of stock options. The compensation committee reviews all components of the executive’s compensation when determining annual equity awards to ensure that an executive’s total compensation conforms to our overall philosophy and objectives. As with the other forms of executive compensation, we intend that the share numbers of these awards will be set near the 50th percentile of option grants by comparable companies as set forth in the compensation data.

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     Typically, the stock options we grant to our executives have ten-year option terms and vest in four equal annual installments. We set the exercise price of all stock options to equal the closing price of our common stock on the day of the grant. Prior to the exercise of an option, the holder has no rights as a shareholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents. The stock option agreements with our executive officers provide that the stock options will become immediately exercisable in full if there is a change in control of the company, upon death or disability, or upon retirement in accordance with our normal retirement policy. Except in the case of termination for cause, exercise rights cease twelve months after the date of termination, or upon death or disability.
     We do not have any equity ownership guidelines for our executives.
     Equity awards to our executives are typically granted annually in conjunction with the committee’s review of their individual performance. This review generally takes place at a meeting of the compensation committee held in the first quarter of each year. We do not plan to make these annual grants of stock options at a time when we are aware of material non-public information. We generally time annual option grants so that the grants occur after the release of our financial results for the previous fiscal year.
     On February 17, 2009, the compensation committee approved for our named executive officers the stock option awards set forth in the table below.
         
    Number of Shares  
    Subject to Stock  
Executive Officer   Options Granted  
Jennifer L. Good,
    100,000  
President and Chief Executive Officer
       
Thomas R. Sciascia, M.D.,
    65,000  
Senior Vice President, Clinical and Regulatory Affairs and Chief Medical Officer
       
Amale Hawi, Ph.D.,
    65,000  
Senior Vice President, Pharmaceutical Development
       
Anand R. Baichwal, Ph.D.,
    50,000  
Senior Vice President, Licensing and Business Development
       
     In granting these awards, the committee acknowledged that these option levels were identical to the option levels granted in 2008 and that 2008 option levels had been deemed generous in light of the relatively low cash bonuses that were granted to the executives for 2007 and determined that, given the salary freeze, the option awards should continue to be generous. The committee also considered the compensation data and determined that these awards were within the desired range with regard to the number of shares underlying the options granted to each executive.
     Severance/Change in Control Benefits
     Retention Agreements
     We enter into executive retention agreements with each of our executive officers. Pursuant to the executive retention agreements and our stock option agreements under our stock incentive plans, our executives are entitled to specified benefits in the event of the termination of their employment under specified circumstances following a change in control. We have provided more detailed information about these agreements and benefits, along with estimates of their value under various circumstances, under the caption “Potential Payments Upon Termination or Change in Control” below.
     The committee first decided that we should enter into executive retention agreements with our executive officers in 2005 after reviewing the practices of other companies. The committee believed that the benefits provided for by these agreements would provide management with the appropriate incentives to act in the best interest of the shareholders, as well as help us attract and retain the necessary executive talent for growing our business. These agreements were set to expire at the end of 2008. As a result, during 2008, the committee considered whether to let the agreements expire, or to enter into new retention agreements and, if so, on what terms. After consulting with the full board, in November 2008, the committee concluded that it continued to believe that retention agreements are an important component of the incentives we provide to our executive officers. As a result, the committee recommended, and the board approved, new executive retention agreements for our executive officers. These agreements expire on December 31, 2011.

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     As with the expired agreements, we structured the new executive retention agreements to provide “double trigger” benefits. In other words, the change in control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability, or by the executive for good reason during a specified period after the change in control. This period was initially 12 months. We believe a “double trigger” benefit maximizes shareholder value because it prevents an unintended windfall to executives in the event of a friendly change of control, while still providing them appropriate incentives to cooperate in negotiating any change in control in which they believe they may lose their job. Our stock option agreements, however, do provide for full acceleration of vesting upon a change in control.
     We did, however, adjust the change in control benefits payable under the agreements after comparing the benefits provided under the expiring agreements with the benefits generally provided in similar circumstances by other companies in the industry. Under the prior agreements, the severance benefits had been determined based on the number of years of service with the company. Under the new agreements, benefits are determined based on the executive’s position with the company.
     On March 16, 2010, we entered into amendments to the agreements with each of our executive officers. Under the amended agreements, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability, or by the executive for good reason during the 18-month period following the change in control, rather than the 12-month period initially provided by the agreement. The amended agreements also provide for earlier payment of the severance amounts (including payment of as much as possible in a lump sum) to the extent permitted by Section 409A of the Internal Revenue Code. The amended agreement did not increase the amount of severance payable to the executives. The compensation committee approved the amendments in recognition of the uncertainty our executives faced as a result of the anticipated proxy contest in connection with the 2010 annual meeting of shareholders.
     Severance
     In connection with the resignation of Mr. Palleiko, our former Senior Vice President, Corporate Development, and Chief Financial Officer, on January 21, 2009, the committee approved a severance and settlement and release agreement with Mr. Palleiko that provided for a severance payment in the aggregate amount of $225,750, which was paid in equal bi-weekly installments to Mr. Palleiko over the nine months following the date of his termination, plus $15,416 in premiums paid on behalf of Mr. Palleiko in respect of health, dental and vision insurance coverage for the nine-month period following Mr. Palleiko’s termination. Additionally, the severance agreement provided for acceleration of vesting with respect to an aggregate of 16,250 shares of common stock under stock options issued to Mr. Palleiko on March 13, 2008 and June 11, 2008, such that the shares became immediately exercisable as of January 30, 2009. 11,375 of such shares had an exercise price of $2.62, and 4,875 of such shares had an exercise price of $3.05. The closing price of our common stock on the NASDAQ Global Market was $1.77 on January 30, 2009, the date on which such options were modified to become fully vested. In approving these benefits, the committee considered the terms of prior separation arrangements entered into by us with former executive officers and the contributions made by Mr. Palleiko during his tenure with us.
     Benefits and Other Compensation
     We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance, and a 401(k) plan. Executives are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. We contribute $0.75 for every dollar of employee contributions to the 401(k) plan, up to 6% of the employee’s eligible pay.
     We limit the perquisites that we make available to our executive officers. Our executive officers are entitled to few benefits that are not otherwise available to all of our employees. For example, we do not provide pension arrangements, post-retirement health coverage or similar benefits to our executive officers or our other employees. Similarly, our health and insurance plans are the same for all employees.
     In 2009, Ms. Good received a monthly allowance of $1,000 of reimbursement for her vehicle. We also paid the hotel and living expenses of Dr. Sciascia for those nights that he stayed in Danbury, Connecticut.

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     Tax Considerations
     Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction for compensation in excess of $1.0 million paid to each of our chief executive officer, our chief financial officer and each other officer whose compensation is required to be reported to our shareholders pursuant to the Exchange Act by reason of being among our three most highly compensated executive officers. Qualifying performance-based compensation is not subject to the deduction limitation if specified requirements are met. We periodically review the potential consequences of Section 162(m) and we generally intend to structure the performance-based portion of our executive compensation, where feasible, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to us. However, the compensation committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent.
Risks Arising from Compensation Policies and Practices
     We believe our approach to goal setting, setting of targets with payouts at multiple levels of performance, and evaluation of performance results assist in mitigating excessive risk-taking that could harm our value or reward poor judgment by our executives. Several features of our programs reflect sound risk management practices. We believe we have allocated our compensation among base salary and short and long-term compensation target opportunities in such a way as to not encourage excessive risk-taking. Further, with respect to our incentive compensation programs, although the corporate performance metrics that determine payouts for certain business operations leaders are based in part on the achievement of business segment metrics, the metrics that determine payouts for our executive officers are company-wide metrics only. This is based on our belief that applying Company-wide metrics encourages decision-making that is in the best long-term interests of Penwest and our shareholders as a whole. The mix of equity award instruments used under our long-term incentive program that includes full value awards also mitigates risk. Finally, the multi-year vesting of our equity awards properly accounts for the time horizon of risk.
Executive Compensation
     Summary Compensation
     The following table contains information about the compensation of each of our named executive officers for the years ended December 31, 2009, December 31, 2008, and December 31, 2007.
Summary Compensation Table
                                                         
                                    Non-Equity              
                                    Incentive              
                            Option     Plan     All Other        
            Salary     Bonus     Awards     Compensation     Compensation     Total  
Name and Principal Position   Year     ($)     ($)     ($)(1)     ($)(2)     ($)     ($)  
Jennifer L. Good(3)
    2009     $ 398,130     $     $ 98,000     $ 139,000     $ 24,600 (4)   $ 659,730  
President and
    2008       381,374             178,600       92,880       23,925       676,779  
Chief Executive Officer
    2007       369,339       45,000       453,050             23,700       891,089  
Benjamin L. Palleiko(5)
    2009       29,231                         241,885 (6)     271,116  
Former Senior Vice President,
    2008       296,028             116,090       36,120       18,475       466,713  
Corporate Development and
    2007       287,878       29,200       209,100             17,478       543,656  
Chief Financial Officer
                                                       
Thomas R. Sciascia, M.D.
    2009       318,991             63,700       77,000       17,535 (7)     447,226  
Senior Vice President,
    2008       305,086             116,090       55,800       17,707       494,683  
Clinical and Regulatory Affairs and
    2007       294,652       30,000       313,650             17,773       656,075  
Chief Medical Officer
                                                       
Amale Hawi, Ph.D.(8)
    2009       292,099             63,700       74,000       12,180 (9)     441,979  
Senior Vice President,
    2008       279,565             89,300       63,360       11,505       443,730  
Pharmaceutical Development
    2007       172,404             684,000       18,425       4,011       878,840  
Anand R. Baichwal, Ph.D.
    2009       254,607             49,000       67,000       12,600 (10)     383,207  
Senior Vice President, Licensing
    2008       244,334             80,370       40,920       11,925       377,549  
and Business Development
    2007       234,652       24,000       209,100             11,700       479,452  

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(1)   Aggregate grant date fair value of option awards granted during the year computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“FASB ASC Topic 718”). The grant-date fair value was determined using a Black-Scholes valuation applied to the number of shares which may be purchased under an option grant. The assumptions used in the Black-Scholes valuations and the resulting values per share may be found in Note 11 of the Company’s 2009 Form 10-K filed with the SEC on March 16, 2010.
 
(2)   The amounts in this column reflect payments made under our annual cash incentive bonus program, which is described above in “Compensation Discussion and Analysis.”
 
(3)   Ms. Good is also a member of our board of directors but does not receive any additional compensation in her capacity as a director.
 
(4)   Consists of:
 
    $12,000 in an automobile allowance;
 
    $11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and
 
    $1,575 in premiums paid on behalf of Ms. Good for supplemental life and disability insurance plans.
 
(5)   In connection with the resignation of Mr. Palleiko, our former Senior Vice President, Corporate Development, and Chief Financial Officer, on January 21, 2009, the committee approved a severance and settlement and release agreement with Mr. Palleiko that provided for a severance payment in the aggregate amount of $225,750, which was paid in equal bi-weekly installments to Mr. Palleiko over the nine months following the date of his termination, plus $15,416 in premiums paid on behalf of Mr. Palleiko in respect of health, dental and vision insurance coverage for the nine-month period following Mr. Palleiko’s termination. Additionally, the severance agreement provided for acceleration of vesting with respect to an aggregate of 16,250 shares of common stock under stock options issued to Mr. Palleiko on March 13, 2008 and June 11, 2008, such that the shares became immediately exercisable as of January 30, 2009.
 
(6)   Consists of the payments described in footnote 5, in connection with the termination of Mr. Palleiko’s employment, in addition to the following payments made during Mr. Palleiko’s employment:
 
    $588 in hotel and living expense reimbursements for Mr. Palleiko;
 
    $131 in premiums paid on behalf of Mr. Palleiko for supplemental life and disability insurance.
 
(7)   Consists of:
 
    $4,935 in hotel and living expense reimbursements for Dr. Sciascia;
 
    $11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and
 
    $1,575 in premiums paid on behalf of Dr. Sciascia for supplemental life and disability insurance plans.
 
(8)   Dr. Hawi joined the company in May 2007.
 
(9)   Consists of:
 
    $11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and
 
    $1,155 in premiums paid on behalf of Dr. Hawi for supplemental life and disability insurance plans.
 
(10)   Consists of:
 
    $11,025 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and
 
    $1,575 in premiums paid on behalf of Dr. Baichwal for supplemental life and disability insurance plans.

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     Employment Letter Arrangements and Other Agreements with our Named Executive Officers
     In connection with the resignation of Mr. Palleiko, our former Senior Vice President, Corporate Development, and Chief Financial Officer, on January 21, 2009, the committee approved a severance and settlement and release agreement with Mr. Palleiko that provided for a severance payment in the aggregate amount of $225,750, which was paid in equal bi-weekly installments to Mr. Palleiko over the nine months following the date of his termination, plus $15,416 in premiums paid on behalf of Mr. Palleiko in respect of health, dental and vision insurance coverage for the nine-month period following Mr. Palleiko’s termination. Additionally, the severance agreement provided for acceleration of vesting with respect to an aggregate of 16,250 shares of common stock under stock options issued to Mr. Palleiko on March 13, 2008 and June 11, 2008, such that the shares became immediately exercisable as of January 30, 2009.
     We have entered into executive retention agreements with each of our named executive officers. A description of the executive retention agreements entered into with each named executive officer is included under “Potential Payments Upon Termination or Change in Control” below.
     Grants of Plan-Based Awards During 2009
     The following table summarizes information regarding options granted to each of the named executive officers during the year ended December 31, 2009.
2009 Grants of Plan-Based Awards
                                                         
                                    All Other                
                                    Option                
                                    Awards:             Grant  
                                    Number of     Exercise or     Date  
    Estimated Future Payouts Under             Securities     Base Price     Fair  
    Non-Equity Incentive Plan Awards             Underlying     of Option     Value of  
    Threshold     Target     Maximum     Grant     Options     Awards     Option  
Name   ($)     ($)(1)     ($)     Date     (2)     ($/Sh)(3)     Awards(4)  
Jennifer L. Good
                154,800       3/5/09       100,000     $ 1.56     $ 98,000  
Benjamin L. Palleiko
                                         
Thomas Sciascia, M.D.
                93,000       3/5/09       65,000       1.56       63,700  
Amale Hawi, Ph.D.
                84,480       3/5/09       65,000       1.56       63,700  
Anand R. Baichwal, Ph.D.
                74,400       3/5/09       50,000       1.56       49,000  
 
(1)   This reflects the targets set for 2009 under our annual cash incentive bonus program, as described in “Compensation Discussion and Analysis.”
 
(2)   Options granted in 2009 to the named executive officers become exercisable in four equal annual installments, commencing one year after the vesting commencement date, which is typically the grant date.
 
(3)   The exercise price of the stock option awards is equal to the closing price of our common stock on the grant date as reported by the NASDAQ Global Market.
 
(4)   Grant date fair value of option awards computed in accordance with ASC Topic 718.

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Outstanding Equity Awards at 2009 Fiscal Year-End
     The following table summarizes information regarding unexercised stock options held by the named executive officers as of December 31, 2009.
2009 Outstanding Equity Awards at Fiscal Year-End
                 
    Option Awards
    Number of   Number of        
    Securities   Securities        
    Underlying   Underlying        
    Unexercised   Unexercised   Option    
    Options   Options   Exercise   Option
    (#)   (#)   Price   Expiration
Name   Exercisable   Unexercisable   ($)   Date
Jennifer L. Good
  22,000     12.75   2/02/2010
 
  32,000     12.00   3/01/2011
 
  32,000     19.13   2/14/2012
 
  50,000     9.90   2/20/2013
 
  50,000     16.39   2/12/2014
 
  45,000     10.35   2/17/2015
 
  50,000     16.14   11/23/2015
 
  37,500(1)   12,500(1)   22.67   2/09/2016
 
  32,500(2)   32,500(2)   13.02   3/01/2017
 
  17,500(3)   52,500(3)   2.62   3/13/2018
 
  7,500(4)   22,500(4)   3.05   6/11/2018
 
    100,000(5)   1.56   3/5/2019
 
               
Benjamin L. Palleiko
  75,000   —(7)   17.15   1/21/2010
 
  7,500   —(7)   13.02   1/21/2010
 
  11,375   —(7)(8)   2.62   1/21/2010
 
  4,875   —(7)(8)   3.05   1/21/2010
 
               
Thomas R. Sciascia, M.D.
  75,000     13.00   3/06/2011
 
  25,000     19.13   2/14/2012
 
  36,000     9.90   2/20/2013
 
  30,000     16.39   2/12/2014
 
  35,000     10.35   2/17/2015
 
  22,500(1)   7,500(1)   22.67   2/09/2016
 
  22,500(2)   22,500(2)   13.02   3/01/2017
 
  11,375(3)   34,125(3)   2.62   3/13/2018
 
  4,875(4)   14,625(4)   3.05   6/11/2018
 
    65,000(5)   1.56   3/5/2019
 
               
Amale Hawi, Ph.D.
  50,000(6)   50,000(6)   12.09   5/02/2017
 
  8,750(3)   26,250(3)   2.62   3/13/2018
 
  3,750(4)   11,250(4)   3.05   6/11/2018
 
    65,000(5)   1.56   3/5/2019
 
               
Anand R. Baichwal, Ph.D.
  15,000     12.75   2/02/2010
 
  20,000     12.00   3/01/2011
 
  20,000     19.13   2/14/2012
 
  20,000     9.90   2/20/2013
 
  20,000     10.35   2/17/2015
 
  22,500(1)   7,500(1)   22.67   2/09/2016
 
  15,000(2)   15,000(2)   13.02   3/01/2017
 
  7,875(3)   23,625(3)   2.62   3/13/2018
 
  3,375(4)   10,125(4)   3.05   6/11/2018
 
    50,000(5)   1.56   3/5/2019
 
(1)   These options vest in four equal annual installments with the first installment vesting on February 9, 2007.
 
(2)   These options vest in four equal annual installments with the first installment vesting on March 1, 2008.
 
(3)   These options vest in four equal annual installments with the first installment vesting on March 13, 2009.
 
(4)   These options vest in four equal annual installments with the first installment vesting on June 11, 2009.

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(5)   These options vest in four equal installments with the first installment vesting on March 5, 2010.
 
(6)   These options vest in four equal annual installments with the first installment vesting on May 2, 2008.
 
(7)   These options expired one year from the date of termination of Mr. Palleiko’s employment with us.
 
(8)   Vesting of options was accelerated in 2009 as part of the severance agreement between Mr. Palleiko and the company.
Option Exercises and Stock Vested During 2009
     None of the named executive officers exercised any vested options during 2009. We do not have a policy of granting our named executive officers restricted or non-restricted shares of our common stock. We did not grant to any named executive officers any awards of common stock in 2009.
Potential Payments Upon Termination or Change in Control
     On November 12, 2008, we entered into executive retention agreements with each of our executive officers. These retention agreements replaced prior retention agreements with each of our executive officers that had been scheduled to expire on December 31, 2008. On March 10, 2010, we entered into amendments to these agreements.
     The retention agreements, as amended, provide that, if, within 18 months following a change in control of our company, the executive’s employment is terminated by us other than for cause, death, or disability, or by the executive for good reason, as such terms are defined in the retention agreements:
    we will pay the executive an amount equal to either 200% (in the case of our chief executive officer) or 150% (in the case of our other executive officers) of the highest annual base salary during the period of the executive’s employment with us and the highest annual bonus during the period of the executive’s employment with us, including the target bonus of the executive for the calendar year during which the date of termination occurs, with such amount to be paid as soon as possible following termination, to the extent permitted by Section 409A of the Internal Revenue Code;
 
    we will pay the full premium for group medical insurance under the continuation coverage rules known as COBRA, up to the amount that we pay for active and similarly-situated employees who receive the same type of coverage, with such payments to last until the earlier of (i) 24 months (in the case of our chief executive officer) or 18 months (in the case of our other executive officers) following the date the executive’s employment is terminated and (ii) the date the COBRA continuation coverage expires; and
 
    the vesting of all stock options and restricted stock held by the executive will be accelerated in full, to the extent not already vested, and all shares of stock underlying stock options and all shares of restricted stock will be free of any right of repurchase by us.
     The retention agreements terminate if a change in control of the company does not occur prior to December 31, 2011.
     The following table shows payments and benefits potentially payable to each of our named executive officers that was employed with us on December 31, 2009 if he or she were to be terminated other than for cause, death or disability, or resigns for good reason following a change in control of our company. The amounts shown assume that such termination was effective as of December 31, 2009, and thus include amounts earned through such time, and are estimates of the amounts that would be paid out to the executive upon his or her termination. Mr. Palleiko is not included on the following table as his employment with the company terminated in January 2009, as described under “Severance/Change in Control Benefits — Severance”.
                                         
                    Continuing   Additional   Acceleration of
    Base Salary   Bonus   Benefits   Payments   Stock
Name   ($)   ($)   ($)   ($)(1)   Options(2)($)
Jennifer L. Good
    774,000       309,600       36,624       10,000       103,000  
Thomas R. Sciascia, M.D.
    465,000       139,500       31,041       10,000       66,950  
Amale Hawi, Ph.D.
    422,400       126,720       9,996       10,000       66,950  
Anand R. Baichwal, Ph.D.
    372,000       111,600       31,054       10,000       51,500  

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(1)   Consists of compensation for the discontinuance of life insurance, accidental death and dismemberment insurance and long-term disability insurance benefits that would have been provided over the 24 months (in the case of our chief executive officer) or 18 months (in the case of our other executive officers) had the executive’s employment not been terminated.
 
(2)   This amount would be determined by multiplying the number of option shares that would accelerate, assuming a December 31, 2009 employment termination date, by the excess of $2.59 over the exercise price of the option. $2.59 is the closing price of our common stock on the NASDAQ Global Market on December 31, 2009.
Compensation of Directors
     Under our director compensation program, non-employee directors receive annual fees, meeting fees and equity compensation as follows. Kevin C. Tang and Joseph E. Edelman do not accept any compensation in connection with their service as directors.
Annual Fees
     Each non-employee director receives:
         
Annual retainer as a director
  $ 20,000  
Additional annual retainer for chairman of the board
    15,000  
Additional annual retainer for audit committee chair
    15,000  
Additional annual retainer for other audit committee members
    5,000  
Additional annual retainer for other board committee chairs
    10,000  
Additional annual retainer for other board committee members
    3,000  
     We pay these annual retainers in quarterly installments on the first business day of each calendar quarter. Directors may elect to receive these fees in cash, shares of our common stock or a combination of both. For those directors that have elected to receive shares of stock in lieu of cash fees, we determine the number of shares of common stock to be issued in lieu of cash fees by dividing the fees to be paid in stock by the closing price of our common stock on the date the fees are otherwise payable. In 2009, we granted an aggregate of 14,014 shares of common stock related to annual retainer fees and meeting fees, as described below, to our non-employee directors at a weighted average of $2.00 per share.
Meeting Fees
     We also pay our non-employee directors, in cash or shares of our common stock pursuant to a director’s election, fees of $1,500 for each board meeting attended in person and fees of between $500 and $1,000 for each board meeting attended telephonically. For those directors that have elected to receive shares of stock in lieu of cash fees, we determine the number of shares of common stock to be issued in lieu of cash fees by dividing the fees to be paid in stock by the closing price of our common stock on the date the fees are otherwise due.
Equity Compensation
     On the first business day of each calendar year, we issue each non-employee director either options to purchase 12,000 shares of our common stock or a grant of 6,000 shares of restricted common stock, as elected by each director. The exercise price of the options equals the closing price of our common stock on the grant date. Options granted pursuant to this program vest on the first anniversary of the date of grant. Shares of restricted common stock granted pursuant to this program are granted without requiring payment of additional consideration by the recipient and vest on the first anniversary of the grant date. The vesting of options and of the restricted common stock granted to our non-employee directors is subject to acceleration in full upon a change in control of our company.
     In addition, upon the date of the initial election of a non-employee director to our board, we grant such non-employee director 20,000 shares of restricted common stock and grant an additional 12,000 shares of restricted common stock every four years thereafter. These shares vest in four equal annual installments commencing upon the first anniversary of the date of the grant. The vesting of the restricted common stock is subject to acceleration in full upon a change in control of our company.

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Expense Reimbursement
     We reimburse our non-employee directors for all reasonable expenses incurred in attending meetings of the board of directors and committees of the board.
     The following table summarizes the amounts paid (and stock awards made) to our non-employee directors during 2009.
2009 Director Compensation
                                 
    Fees Earned or            
    Paid in Cash   Stock Awards   Option Awards   Total
Name(1)   ($)(2)   ($)(3)   ($)(4)   ($)
Christophe M. Bianchi, M.D.
  $ 42,250     $     $ 12,600     $ 54,850  
Peter F. Drake, Ph.D.
    36,249       30,300             66,549  
Joseph E. Edelman(5)
                       
Paul E. Freiman
    60,250       10,020             70,270  
Robert J. Hennessey(6)
    17,750             12,600       30,350  
David P. Meeker, M.D.
    50,750             12,600       63,350  
W. James O’Shea(7)
    21,500             12,600       34,100  
John N. Staniforth, Ph.D.(8)
    11,500       10,020             21,520  
Kevin C. Tang(5)
                       
Anne M. VanLent
    50,750             12,600       63,350  
 
(1)   Jennifer L. Good, one of our directors, is also our President and Chief Executive Officer and a named executive officer. Ms. Good does not receive any additional compensation as a director. See “Summary Compensation Table” above for disclosure relating to her compensation.
 
(2)   Includes fees that were paid in shares of common stock in lieu of cash at the directors’ elections:
 
    Dr. Drake received 14,014 shares of common stock in lieu of $27,999 of cash fees
 
(3)   The amounts shown represent the aggregate grant date fair value, computed using the market price on the date of grant of restricted stock awards granted during 2009, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”).
 
(4)   The amounts shown represent the aggregate grant date fair value of option awards granted during 2009 computed in accordance with FASB ASC Topic 718. The grant date fair value was determined using a Black-Scholes valuation applied to the number of shares granted under an option. The assumptions used in the Black-Scholes valuations and the resulting values per share may be found in Note 11 of the Company’s 2009 Form 10-K filed with the SEC on March 16, 2010.
 
(5)   Joseph Edelman and Kevin Tang have elected not to receive compensation for serving as a member of the board of directors.
 
(6)   Robert Hennessey’s term as a director expired at the 2009 annual meeting. In connection with this, the vesting of options to purchase 12,000 shares of our common stock, and the vesting of 6,000 shares of our restricted stock granted to him in 2007, were accelerated in full. The grant date fair value of such options was $12,600, and the fair value of such options on the date of acceleration was $11,640. The grant date fair value of such restricted stock was $88,710, and the fair value of such restricted stock on the date of acceleration was $13,560.
 
(7)   W. James O’Shea’s term as a director expired at the 2009 annual meeting. In connection with this, the vesting of options to purchase 12,000 shares of our common stock, and the vesting of 10,000 shares of our restricted stock, were accelerated in full. The grant date fair value of such options was $12,600, and the fair value of such options on the date of acceleration was $12,480. The grant date fair value of such restricted stock was $134,100, and the fair value of such restricted stock on the date of acceleration was $24,300.
 
(8)   John N. Staniforth’s term as a director expired at the 2009 annual meeting. In connection with this, the vesting of 6,000 shares of our restricted stock granted to him in 2009, and the vesting of 6,000 shares of our restricted stock granted to him in 2007, were accelerated in full. The grant date fair value of such restricted stock granted to him in 2009 was $10,020, and the fair value of such restricted stock on the date of acceleration was $14,580. The grant date fair value of such restricted stock granted to him in 2007 was $89,160, and the fair value of such restricted stock on the date of acceleration was $14,580.

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     The following table shows the aggregate number of unvested stock awards held by each of our non-employee directors as of December 31, 2009, and the aggregate number of shares subject to options held by each of our non-employee directors as of December 31, 2009.
                 
    Aggregate    
    Number of    
    Unvested Stock   Aggregate Number
    Awards as of   of Option Awards
Name   12/31/09   as of 12/31/09
Christophe M. Bianchi, M.D.
    10,000       12,000  
Peter F. Drake, Ph.D.
    18,000        
Joseph E. Edelman
           
Paul E. Freiman
    12,000       58,673  
Robert J. Hennessey
          73,568  
David P. Meeker, M.D.
    10,000       12,000  
W. James O’Shea
          12,000  
John N. Staniforth, Ph.D.
          79,666  
Kevin C. Tang
           
Anne M. VanLent
    6,000       83,374  
Compensation Committee Interlocks and Insider Participation
     The current members of the compensation committee are Mr. Freiman, Dr. Drake and Dr. Bianchi. No member of the compensation committee was at any time during 2009, or formerly, an officer or employee of ours or any subsidiary of ours, nor has any member of the compensation committee had any relationship with us requiring disclosure under Item 404 of Regulation S-K of the Exchange Act.
     None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee.
Compensation Committee Report
     The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the company’s management, as set forth below under “Information About Executive and Director Compensation”. Based on this review and discussion, the compensation committee recommended to the company’s board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
By the Compensation Committee of
the Board of Directors of
Penwest Pharmaceuticals Co.
Christophe M. Bianchi, Chair
Peter F. Drake
Paul E. Freiman

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners and Management
          The following table presents information we know regarding the beneficial ownership of our common stock as of January 31, 2010 for each person, entity or group of affiliated persons whom we know to beneficially own more than 5% of our common stock. The table also sets forth such information for our directors and named executive officers and a former named executive officer, individually, and our directors and executive officers as a group.
     Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated by footnote, to our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Options and/or warrants to purchase shares of common stock that are exercisable within 60 days of January 31, 2010 are deemed to be beneficially owned by the person holding such options for the purpose of computing ownership of such person, but are not treated as outstanding for the purpose of computing the ownership of any other person. Applicable percentage of beneficial ownership is based on 31,808,690 shares of common stock outstanding as of January 31, 2010.
     Unless otherwise indicated in the footnotes, the address of each director and named executive officer set forth below is: c/o Penwest Pharmaceuticals Co., 2981 Route 22, Suite 2, Patterson, NY 12563.
                 
    Amount and Nature of Beneficial
    Ownership
Name and Address of Beneficial Owner   Number of Shares   Percentage
Tang Capital Management, LLC and Related Persons
    6,695,598 (1)     21.0 %
4401 Eastgate Mall
               
San Diego, CA 92121
               
 
               
Perceptive Advisors and Related Persons
    6,476,446 (2)     20.4 %
499 Park Avenue, 25(th) Floor
               
New York, NY 10022
               
 
               
D.E. Shaw & Co., L.P.
    2,515,771 (3)     7.9 %
120 W. 45(th) Street, Tower 45, 39th Floor
               
New York, NY 10036
               
 
               
Directors and Director Nominees:
               
 
               
Christophe M. Bianchi, M.D.
    44,000 (4)     *  
 
               
Peter F. Drake, Ph.D.
    97,923       *  
 
               
Joseph E. Edelman
    6,476,446 (2)     20.4 %
 
               
Paul E. Freiman
    80,457 (5)     *  
 
               
Jennifer L. Good
    458,217 (6)     1.4 %
 
               
David P. Meeker, M.D.
    47,612 (7)     *  
 
               
Kevin C. Tang
    6,695,598 (1)     21.0 %
 
               
Anne M. VanLent
    126,107 (8)     *  
 
               
Other Named Executive Officers:
               
 
               
Anand R. Baichwal, Ph.D.
    187,055 (9)     *  
 
               
Amale Hawi, Ph.D.
    87,500 (10)     *  
 
               
Thomas R. Sciascia, M.D.
    349,119 (11)     1.1 %
 
               
All executive officers and directors as a group (11 persons)
    14,650,034       44.5 %
 
*   Represents beneficial ownership of less than 1%.
 
(1)   The foregoing information is based solely on a Schedule 13D/A filed with the Securities and Exchange Commission on February 5, 2010. Tang Capital Partners, LP reports having shared voting and dispositive power for 6,396,598 shares; Tang Capital Management, LLC reports having shared voting and dispositive power for 6,396,598 shares; and Kevin C. Tang reports having sole voting and dispositive power with respect to 77,500 shares, shared voting power for 6,544,098 shares and shared dispositive power for 6,618,098 shares.

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(2)   The foregoing information is based solely on a Schedule 13D/A filed with the Securities and Exchange Commission on February 5, 2010. Perceptive Advisors LLC and Mr. Joseph Edelman report having shared voting power and shared dispositive power for 6,476,446 shares.
 
(3)   The foregoing information is based solely on a Schedule 13G/A filed with the Securities and Exchange Commission on February 16, 2010. David E. Shaw is the President and sole shareholder of D.E. Shaw & Co., Inc., which is the general partner of D.E. Shaw & Co., LP., which in turn is the managing member and investment advisor of D.E. Shaw Valence Portfolios, L.L.C. David E. Shaw may be deemed to have the shared power to vote or direct the vote of, and the shared power to dispose or direct the disposition of, the 2,515,771 shares as described above and, therefore, Mr. Shaw may be deemed to be the beneficial owner of such shares. Mr. Shaw disclaims beneficial ownership of such 2,515,771 shares. D.E. Shaw Valence Portfolios, L.L.C. and D.E. Shaw & Co., L.P. report having shared voting power and shared dispositive power for 2,515,771 shares.
 
(4)   Includes 12,000 shares subject to outstanding stock options held by Dr. Bianchi that are exercisable within 60 days following January 31, 2010.
 
(5)   Includes 51,202 shares subject to outstanding stock options held by Mr. Freiman that are exercisable within 60 days following January 31, 2010.
 
(6)   Includes 425,250 shares subject to outstanding stock options held by Ms. Good that are exercisable within 60 days following January 31, 2010.
 
(7)   Includes 12,000 shares subject to outstanding stock options held by Dr. Meeker that are exercisable within 60 days following January 31, 2010.
 
(8)   Includes 75,616 shares subject to outstanding stock options held by Ms. VanLent that are exercisable within 60 days following January 31, 2010.
 
(9)   Includes 164,125 shares subject to outstanding stock options held by Dr. Baichwal that are exercisable within 60 days following January 31, 2010.
 
(10)   Includes 87,500 shares subject to outstanding stock options held by Dr. Hawi that are exercisable within 60 days following January 31, 2010.
 
(11)   Includes 308,625 shares subject to outstanding stock options held by Dr. Sciascia that are exercisable within 60 days following January 31, 2010.
Securities Authorized for Issuance Under Equity Compensation Plans
          The following table provides information, as of December 31, 2009, about our common stock that may be issued upon exercise of options, warrants and rights under all of our equity compensation plans, which consist of our 2005 Stock Incentive Plan, our 1997 Equity Incentive Plan and our 1997 Employee Stock Purchase Plan.
Equity Compensation Plan Information
                         
    Number of             Number of Shares  
    Shares to be             Remaining Available  
    Issued Upon             for Future Issuance  
    Exercise of     Weighted-Average     Under Equity  
    Outstanding     Exercise Price of     Compensation Plans  
    Options,     Outstanding     (Excluding Shares  
    Warrants and     Options, Warrants     Reflected in  
    Rights     and Rights     Column A)  
Plan Category   (Column A)     (Column B)     (Column C)  
Equity compensation plans that have been approved by shareholders
    2,615,682     $ 10.62       2,157,006  
Equity compensation plans that have not been approved by our shareholders
        $        
 
                 
Total
    2,615,682     $ 10.62       2,157,006  
     As of March 31, 2010, there were 2,832,705 shares subject to issuance upon the exercise of outstanding stock options or awards under our equity compensation plans, at a weighted average exercise price of $9.03, and with a weighted average remaining life of 6.55 years. In addition, as of March 31, 2010, there were 57,000 unvested shares of restricted stock outstanding under our equity compensation plans. As of March 31, 2010, there were 1,763,991 shares available for future issuance under our 2005 Stock Incentive Plan, no shares available for future issuance under our 1997 Equity

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Incentive Plan, and 7,803 shares available for future issuance under our 1997 Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Transactions with Related Persons
Related Person Transactions
     We have determined that there were no related party transactions to disclose in 2009.
Policy and Procedures for Related Person Transactions
          Our board of directors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which Penwest is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% shareholders (or their immediate family members), each of whom we refer to as a related person, has a direct or indirect material interest, which we refer to as a related person transaction.
     The policy calls for proposed related person transactions to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the audit committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually
     A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the committee will review and consider:
    the related person’s interest in the related person transaction;
 
    the approximate dollar value of the amount involved in the related person transaction;
 
    the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;
 
    whether the transaction was undertaken in the ordinary course of our business;
 
    whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party;
 
    the purpose of, and the potential benefits to us of, the transaction; and
 
    any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.
The committee may approve or ratify the transaction only if the committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, Penwest’s best interests. The committee may impose any conditions on the related person transaction that it deems appropriate.
Board Independence
     Under the rules of The NASDAQ Stock Market, a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has determined that none of Drs. Bianchi, Drake and Meeker, Mr. Freiman, and Ms. VanLent has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under section 5605(a)(2) of the Nasdaq rules. In addition, our board of directors determined that each of Robert Hennessey and W. James O’Shea, who served

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as directors until their terms expired at the 2009 annual meeting, was an “independent director” as defined under section 5605(a)(2) of the Nasdaq rules. Only independent directors serve on our standing board committees
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
          The following table sets forth the fees billed to us for the fiscal years ended December 31, 2009 and December 31, 2008 by Ernst & Young LLP:
                 
Fee Category   2009     2008  
Audit Fees(1)
  $ 400,000     $ 492,000  
Audit-Related Fees(2)
    45,000       42,000  
Tax Fees(3)
    52,900       70,000  
All Other Fees(4)
    2,162       3,000  
 
           
Total Fees
  $ 500,062     $ 607,000  
 
           
 
(1)   Audit fees consist of fees for the audit of our financial statements, the audit of our internal control over financial reporting, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements, including our registration statements filed on Form S-3 and Form S-8 in 2008.
 
(2)   Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review of our financial statements, and which are not reported under “Audit Fees.” In 2009 and 2008, these fees included fees for audits of our retirement plan.
 
(3)   Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax fees in 2009 and 2008 included tax compliance services, which relate to preparation of original and amended tax returns, claims for refunds and tax payment planning services. Tax fees in 2009 also include tax consulting services in connection with our consideration of shareholder distribution alternatives, including dividend considerations. Tax fees in 2008 also included tax consulting services in connection with our review of the ownership change provisions of Section 382 of the Internal Revenue Code.
 
(4)   In 2009 and 2008, all other fees related to a subscription to the Ernst & Young Global Accounting and Auditing Information Tool.
     The audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the audit committee or the engagement is entered into pursuant to the pre-approval procedures described below.
     From time to time, the audit committee may pre-approve specified types of services that are expected to be provided to us by our independent registered public accounting firm during the next twelve months. Any such pre-approval is detailed as to the particular service or types of services to be provided and is also generally subject to a maximum dollar amount.
     The audit committee has also delegated to the chair of the audit committee the authority to approve any audit or non-audit services to be provided to us by our independent registered public accounting firm. Any approval of services by the chair of the audit committee pursuant to this delegated authority is reported on at the next meeting of the audit committee.

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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)   The list of Exhibits filed as part of this report are set forth on the Exhibit Index immediately preceding such exhibits, and is incorporated herein by this reference. This list includes a subset containing each management contract, compensatory plan, or arrangement required to be filed as an exhibit to this report.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  Penwest Pharmaceuticals Co.
 
 
  /s/ Jennifer L. Good    
  Jennifer L. Good   
  President and Chief Executive Officer   
 
Date: April 29, 2010

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Exhibit Index
                         
            Filed with            
Exhibit       this Form   Form or   Filing Date   SEC File
Number   Description   10-K/A   Schedule   with SEC   Number
  3.1    
Amended and Restated Articles of Incorporation of the Registrant
      10-Q   8/3/2004   000-23467
       
 
               
  3.2    
Amended and Restated Bylaws of the Registrant, as amended
      S-8   7/2/08   333-152086
       
 
               
  3.3    
Designation of Rights and Preference of Series A Junior Participating Preferred Stock of the Registrant filed on July 17, 1998
      10/A   7/17/1998   000-23467
       
 
               
  4.1    
Specimen certificate representing the Common Stock
      S-1/A   12/17/1997   333-38389
       
 
               
  10.1†    
Product Development and Supply Agreement dated August 17, 1994 by and between the Registrant and Mylan Pharmaceuticals Inc.
      S-1   10/21/1997   333-38389
       
 
               
  10.2†    
Sales and Distribution Agreement dated January 3, 1997 by and between the Registrant and Mylan Pharmaceuticals Inc.
      S-1   10/21/1997   333-38389
       
 
               
  10.3†    
Letter Agreement dated February 25, 2000 by and between the Registrant and Mylan Pharmaceuticals Inc.
      10-Q   8/14/2000   000-23467
       
 
               
  10.4†    
Amended and Restated Strategic Alliance Agreement, dated as of April 2, 2002, by and between Endo Pharmaceuticals Holdings Inc. and the Registrant
      10-Q   8/14/2002   000-23467
       
 
               
  10.5†    
Amendment, dated January 7, 2007, to the Amended and Restated Strategic Alliance Agreement, dated as of April 2, 2002, by and between Endo Pharmaceuticals Inc. and the Registrant
      8-K   2/15/2007   000-23467
       
 
               
  10.6    
Second Amendment, dated July 14, 2008, to the Amended and Restated Strategic Alliance Agreement, dated as of April 2, 2002, by and between the Registrant and Endo Pharmaceuticals Inc.
      10-Q   11/10/2008   000-23467
       
 
               
  10.7    
Third Amendment, signed March 31, 2009, to the Amended and Restated Strategic Alliance Agreement, dated as of April 2, 2002, by and between the Registrant and Endo Pharmaceuticals Inc.
      10-Q   5/11/2009   000-34267
       
 
               
  10.8††    
1997 Equity Incentive Plan
      S-1   10/21/1997   333-38389
       
 
               
  10.9††    
1997 Employee Stock Purchase Plan
      S-1   10/21/1997   333-38389
       
 
               
  10.10††    
1998 Spinoff Option Plan
      10/A   7/7/1998   000-23467
       
 
               
  10.11††    
Recognition and Incentive Agreement dated as of May 14, 1990 between the Registrant and Anand Baichwal, as amended
      S-1/A   11/10/1997   333-38389
       
 
               
  10.12    
Termination Agreement dated as of February 1, 2007 by and between Anand Baichwal and the Registrant
      8-K   2/5/2007   000-23467
       
 
               
  10.13††    
Form of Option Agreement for 1997 Incentive Plan
      10-K   3/16/05   000-23467
       
 
               
  10.14††    
2005 Stock Incentive Plan, as amended
      10-Q   8/8/2008   000-23467
       
 
               
  10.15††    
Amendment No. 1 to 2005 Stock Incentive Plan
      10-Q   11/9/06   000-23467
       
 
               
  10.16††    
Form of Incentive Stock Option Agreement for grants under 2005 Stock Incentive Plan
      8-K   6/7/2005   000-23467

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Table of Contents

                         
            Filed with            
Exhibit       this Form   Form or   Filing Date   SEC File
Number   Description   10-K/A   Schedule   with SEC   Number
  10.17††    
Form of Employee Nonstatutory Stock Option Agreement for grants under 2005 Stock Incentive Plan
      8-K   6/7/2005   000-23467
       
 
               
  10.18††    
Form of Nonstatutory Stock Option Agreement (Consultants and Directors) for grants under 2005 Stock Incentive Plan
      8-K   6/7/2005   000-23467
       
 
               
  10.19††    
Form of Director Restricted Stock Agreement for grants under 2005 Stock Incentive Plan
      8-K   6/7/2005   000-23467
       
 
               
  10.20    
Summary of Executive Officer Bonus Program
      10-K   3/16/2009   001-34267
       
 
               
  10.21    
Summary of the Director Compensation Program
      10-K   3/16/2009   001-34267
       
 
               
  10.22†    
Manufacture and Supply Agreement dated November 6, 2006 between the Registrant and Draxis Specialty Pharmaceuticals Inc.
      10-K   3/16/2007   000-23467
       
 
               
  10.23    
Credit and Security Agreement dated as of March 13, 2007 by and among the Registrant and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc.
      10-Q   5/10/2007   000-23467
       
 
               
  10.24†††    
Collaboration and License Agreement dated as of July 16, 2007 by and between Edison Pharmaceuticals, Inc. and the Registrant
      10-Q   11/8/2007   000-23467
       
 
               
  10.25    
Settlement Agreement dated May 5, 2009, by and between Edison Pharmaceuticals, Inc. and the Company
      10-Q   8/10/09   000-34267
       
 
               
  10.26    
Securities Purchase Agreement dated March 5, 2008, among the Registrant and the purchasers party thereto
      8-K   3/6/2008   000-23467
       
 
               
  10.27    
Form of Warrant issued by the Registrant to each of the purchasers under the Securities Purchase Agreement dated March 5, 2008
      8-K   3/6/2008   000-23467
       
 
               
  10.28    
Rights Agreement, dated as of March 11, 2009, between the Registrant and Mellon Investor Services, LLC, as Rights Agent
      8-K   03/12/2009   000-23467
       
 
               
  10.29    
Severance and Settlement Agreement and Release, dated January 30, 2009, by and between the Registrant and Benjamin L. Palleiko
      10-Q   05/11/2009   001-34267
       
 
               
  10.30    
Lease dated February 27, 2003, by and between JRS Pharma LP and the Registrant, as amended to date
      10-K   3/16/2010   001-34267
       
 
               
  23    
Consent of Ernst & Young LLP
      10-K   3/16/2010   001-34267
       
 
               
  31    
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rules 13a-14 or 15d-14, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
   X            
       
 
               
  32    
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
      10-K   3/16/2010   001-34267
 
  Confidential treatment granted as to certain portions, which portions are omitted and filed separately with the Commission.
 
††   Management contract or compensatory plan or arrangement required to be filed as an Exhibit to the Annual Report on Form 10-K.
 
†††   Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission.

30