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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, 2008
 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 000-23467
 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.)39 Old Ridgebury Road
    
    06810-5120Suite 11
    
    (Zip Code)Danbury, Connecticut(Address of Principal Executive Offices)
 Registrants telephone number, including area code:
(877) 736-9378
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon 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
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS  PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESExhibit IndexEx-31 Section 302 Certification of PEO & PFO    Table of Contents  PENWEST PHARMACEUTICALS CO.
 EXPLANATORY NOTE




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Information about our Board of Directors
  
  
  
  
  
  2




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Information about our Director Nominees
  3




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Audit Committee
   Code of Business Conduct and Ethics
 www.penwest.com
  Section 16(a) Beneficial Ownership Reporting Compliance
  
    
    Perceptive Advisors LLC and related persons filed 11 late Forms 4 and failed to
report 23 reportable transactions on a timely basis;
    
    each of our executive officers failed to timely file one Form 4, each relating to
one reportable transaction; and
    
    Mr. Freiman failed to timely file one Form 4 relating to two reportable transactions.
 
 ITEM 11. EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
  Objectives and Philosophy of Our Executive Compensation Program
  
    
    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;
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
    
    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.
      Components of our Executive Compensation Program
  
    
    base salary;
    
    annual cash incentive bonuses;
    
    stock option awards;
    
    change in control benefits; and
    
    health and life insurance, and other employee benefits.
  5




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Base Salary
    Base SalaryExecutive Officer
    
    for 2008Jennifer L. Good,
    
    $
    387,000President and Chief Executive OfficerBenjamin L. Palleiko(1),
    
    $
    301,000Former Senior Vice President, Corporate Development and Chief Financial OfficerThomas R. Sciascia, M.D.,
    
    $
    310,000Senior Vice President, Clinical and Regulatory Affairs and Chief Medical OfficerAmale Hawi, Ph.D.,
    
    $
    281,600Senior Vice President, Pharmaceutical DevelopmentAnand R. Baichwal, Ph.D.,
    
    $
    248,000Senior Vice President, Licensing and Chief Scientific Officer
 
 (1)
    
    Mr. Palleikos employment terminated in January 2009.  Annual Cash Incentive Bonus Plan
   6




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
    
    progressing nalbuphine ER through out-licensing to a partner and
further clinical development;
    
    out-licensing Opana ER in territories outside of the U.S.;
    
    advancing the development of A0001 on the approved timeline;
    
    progressing other candidates in our pipeline; and
    
    managing within an approved operating plan and ending the year with a
minimum level of cash and investments, which included the completion
of at least two drug delivery technology collaborations and an equity
financing.
   2008 Annual2008 Bonus
    
    Cash Bonus
    
    Percentage ofNamed Executive Officer
    
    Targets
    
    Payments
    
    Bonus TargetJennifer L. Good
    
    $
    154,800
    
    
    $
    92,880
    
    
    
    60
    %President and Chief Executive OfficerBenjamin L. Palleiko
    
    $
    90,300
    
    
    $
    36,120
    
    
    
    40
    %Former
Senior Vice President, Corporate Development and Chief
Financial OfficerThomas R. Sciascia, M.D.
    
    $
    93,000
    
    
    $
    55,800
    
    
    
    60
    %Senior Vice President, Clinical and
Regulatory Affairs and Chief Medical
OfficerAmale Hawi, Ph.D.
    
    $
    84,480
    
    
    $
    63,360
    
    
    
    75
    %Senior Vice President,
Pharmaceutical DevelopmentAnand R. Baichwal, Ph.D.
    
    $
    74,400
    
    
    $
    40,920
    
    
    
    55
    %Senior Vice President, Licensing
 Stock Option Awards
  7




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Number of SharesSubject to StockExecutive Officer
    
    Options GrantedJennifer L. Good,
    
    
    100,000President and Chief Executive OfficerBenjamin L. Palleiko,
    
    
    65,000Former Senior Vice President, Corporate
Development and Chief Financial OfficerThomas R. Sciascia, M.D.
    
    
    65,000Senior Vice President, Clinical and Regulatory
Affairs and Chief Medical OfficerAmale Hawi, Ph.D.,
    
    
    50,000Senior Vice President, Pharmaceutical DevelopmentAnand R. Baichwal, Ph.D.,
    
    
    45,000Senior Vice President, Licensing
  Severance/Change in Control Benefits
  8




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Benefits and Other Compensation
    Tax Considerations
  Executive Compensation
 Summary Compensation
  9




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Summary Compensation Table
 Non-EquityIncentiveOption
    
    Plan
    
    All OtherSalary
    
    Bonus
    
    Awards
    
    Compensation
    
    Compensation
    
    TotalName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)(1)
    
    ($)(2)
    
    ($)
    
    ($)Jennifer L. Good(3)
    
    
    2008
    
    
    $
    381,374
    
    
    $
    
    
    
    $
    330,504
    
    
    $
    92,880
    
    
    $
    23,925
    (4)
    
    $
    828,683President and
    
    
    2007
    
    
    
    369,339
    
    
    
    45,000
    
    
    
    458,702
    
    
    
    
    
    
    
    23,700
    
    
    
    896,741Chief Executive Officer
    
    
    2006
    
    
    
    342,012
    
    
    
    
    
    
    
    762,386
    
    
    
    100,000
    
    
    
    25,236
    
    
    
    1,229,634Benjamin L. Palleiko(5)
    
    
    2008
    
    
    
    296,028
    
    
    
    
    
    
    
    436,821
    
    
    
    36,120
    
    
    
    18,475
    (6)
    
    
    787,444Former Senior Vice
President,
    
    
    2007
    
    
    
    287,878
    
    
    
    29,200
    
    
    
    699,549
    
    
    
    
    
    
    
    17,478
    
    
    
    1,034,105Corporate Development
and
    
    
    2006
    
    
    
    141,680
    
    
    
    
    
    
    
    439,425
    
    
    
    68,400
    
    
    
    63,790
    
    
    
    713,295Chief Financial
OfficerThomas R. Sciascia, M.D.
    
    
    2008
    
    
    
    305,086
    
    
    
    
    
    
    
    218,244
    
    
    
    55,800
    
    
    
    17,707
    (7)
    
    
    596,837Senior Vice President,
    
    
    2007
    
    
    
    294,652
    
    
    
    30,000
    
    
    
    301,451
    
    
    
    
    
    
    
    17,773
    
    
    
    643,876Clinical and Regulatory
Affairs and
    
    
    2006
    
    
    
    279,262
    
    
    
    
    
    
    
    294,288
    
    
    
    85,500
    
    
    
    16,691
    
    
    
    675,741Chief Medical OfficerAmale Hawi, Ph.D.
    
    
    2008
    
    
    
    279,565
    
    
    
    
    
    
    
    276,417
    
    
    
    63,360
    
    
    
    11,505
    (8)
    
    
    630,847Senior Vice President
    
    
    2007
    
    
    
    172,404
    
    
    
    
    
    
    
    237,706
    
    
    
    18,425
    
    
    
    4,011
    
    
    
    432,546Pharmaceutical
Development
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Anand R. Baichwal, Ph.D.
    
    
    2008
    
    
    
    244,334
    
    
    
    
    
    
    
    163,641
    
    
    
    40,920
    
    
    
    11,925
    (9)
    
    
    460,820Senior Vice President,
    
    
    2007
    
    
    
    234,652
    
    
    
    24,000
    
    
    
    221,658
    
    
    
    
    
    
    
    11,700
    
    
    
    492,010Licensing and Chief
    
    
    2006
    
    
    
    218,860
    
    
    
    
    
    
    
    217,952
    
    
    
    54,000
    
    
    
    11,318
    
    
    
    502,130Scientific Officer
 
 (1)
    
    Represents the amount of compensation cost that we recognized for financial statement reporting
purposes for fiscal years 2006, 2007 and 2008, as applicable, with respect to outstanding option
awards, as computed in accordance with SFAS No. 123R. In accordance with SFAS No. 123R, the fair
value of each stock option is determined on the date of grant using the Black-Scholes option pricing
model. This value is then expensed over the vesting period using the accelerated attribution method,
the method we elected to recognize expense. The amounts disregard the estimate of forfeitures
related to service-based vesting conditions. See Note 11 to the financial statements in our
Form 10-K for the year ended December 31, 2008 filed with the SEC on March 16, 2009 regarding
assumptions we made in determining the FAS 123R value of equity awards.(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;
    
    $10,350 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)
    
    Mr. Palleikos employment terminated in January 2009.(6)
    
    Consists of: 
    
    $6,550 in hotel and living expense reimbursements for Mr. Palleiko;
    
    $10,350 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and
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
    
    $1,575 in premiums paid on behalf of Mr. Palleiko for supplemental life and disability insurance
plans.
 
 (7)
    
    Consists of: 
    
    $5,782 in hotel and living expense reimbursements for Dr. Sciascia;
    
    $10,350 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)
    
    Consists of: 
    
    $10,350 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.
 
 (9)
    
    Consists of: 
    
    $10,350 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.
 Employment Letter Arrangements and Other Agreements with our Named Executive Officers
   Grants of Plan-Based Awards During 2008
  2008 Grants of Plan-Based Awards
 All OtherOptionAwards:
    
    
    
    
    
    GrantNumber of
    
    Exercise or
    
    DateEstimated Possible Payouts Under
    
    Securities
    
    Base Price
    
    FairNon-Equity Incentive Plan Awards
    
    Underlying
    
    of Option
    
    Value ofGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Options
    
    Awards
    
    OptionName
    
    Date
    
    ($)
    
    ($)(1)
    
    ($)
    
    (2)
    
    ($/Sh)(3)
    
    Awards(4)Jennifer L. Good
    
    
    3/13/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    $
    2.62
    
    
    $
    122,5006/11/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    3.05
    
    
    
    56,100$
    154,800Benjamin L. Palleiko
    
    
    3/13/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,500
    
    
    
    2.62
    
    
    
    79,6256/11/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,500
    
    
    
    3.05
    
    
    
    36,46590,300Thomas R.
Sciascia, M.D.
    
    
    3/13/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,500
    
    
    
    2.62
    
    
    
    79,6256/11/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,500
    
    
    
    3.05
    
    
    
    36,46593,000Amale Hawi, Ph.D.
    
    
    3/13/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    2.62
    
    
    
    61,2506/11/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    3.05
    
    
    
    28,05084,480Anand R.
Baichwal, Ph.D.
    
    
    3/13/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,500
    
    
    
    2.62
    
    
    
    55,1256/11/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    3.05
    
    
    
    25,24574,400
 
 11




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(1)
    
    This reflects the targets set for 2008 under our annual cash incentive bonus
program, as described in Compensation Discussion and Analysis.(2)
    
    Options granted in 2008 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 SFAS No. 123R. Outstanding Equity Awards at 2008 Fiscal Year-End
  2008 Outstanding Equity Awards at Fiscal Year-End
 Option AwardsNumber of
    
    Number ofSecurities
    
    SecuritiesUnderlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    OptionOptions
    
    Options
    
    Exercise
    
    Option(#)
    
    (#)
    
    Price
    
    ExpirationName
    
    Exercisable
    
    Unexercisable
    
    ($)
    
    DateJennifer L. Good
    
    
    22,000
    
    
    
    
    
    
    
    12.75
    
    
    
    2/02/201032,000
    
    
    
    
    
    
    
    12.00
    
    
    
    3/01/201132,000
    
    
    
    
    
    
    
    19.13
    
    
    
    2/14/201250,000
    
    
    
    
    
    
    
    9.90
    
    
    
    2/20/201350,000
    
    
    
    
    
    
    
    16.39
    
    
    
    2/12/201433,750
    (1)
    
    
    11,250
    (1)
    
    
    10.35
    
    
    
    2/17/201550,000
    
    
    
    
    
    
    
    16.14
    
    
    
    11/23/201525,000
    (2)
    
    
    25,000
    (2)
    
    
    22.67
    
    
    
    2/09/201616,250
    (3)
    
    
    48,750
    (3)
    
    
    13.02
    
    
    
    3/01/2017
    
    
    
    70,000
    (4)
    
    
    2.62
    
    
    
    3/13/2018
    
    
    
    30,000
    (5)
    
    
    3.05
    
    
    
    6/11/2018Benjamin L. Palleiko
    
    
    75,000
    (6)
    
    
    75,000
    (6)
    
    
    17.15
    
    
    
    6/19/20167,500
    (7)
    
    
    22,500
    (7)
    
    
    13.02
    
    
    
    3/01/2017
    
    
    
    45,500
    (8)
    
    
    2.62
    
    
    
    3/13/2018
    
    
    
    19,500
    (9)
    
    
    3.05
    
    
    
    6/11/2018Thomas R. Sciascia, M.D.
    
    
    75,000
    
    
    
    
    
    
    
    13.00
    
    
    
    3/06/201125,000
    
    
    
    
    
    
    
    19.13
    
    
    
    2/14/201236,000
    
    
    
    
    
    
    
    9.90
    
    
    
    2/20/201330,000
    
    
    
    
    
    
    
    16.39
    
    
    
    2/12/201426,250
    (1)
    
    
    8,750
    (1)
    
    
    10.35
    
    
    
    2/17/201515,000
    (2)
    
    
    15,000
    (2)
    
    
    22.67
    
    
    
    2/09/201611,250
    (3)
    
    
    33,750
    (3)
    
    
    13.02
    
    
    
    3/01/2017
    
    
    
    45,500
    (4)
    
    
    2.62
    
    
    
    3/13/2018
    
    
    
    19,500
    (5)
    
    
    3.05
    
    
    
    6/11/2018Amale Hawi, Ph.D.
    
    
    25,000
    
    
    
    75,000
    (10)
    
    
    12.09
    
    
    
    5/02/2017
    
    
    
    35,000
    (4)
    
    
    2.62
    
    
    
    3/13/2018
    
    
    
    15,000
    (5)
    
    
    3.05
    
    
    
    6/11/2018Anand R. Baichwal, Ph.D.
    
    
    15,000
    
    
    
    
    
    
    
    12.75
    
    
    
    2/02/201020,000
    
    
    
    
    
    
    
    12.00
    
    
    
    3/01/201120,000
    
    
    
    
    
    
    
    19.13
    
    
    
    2/14/201220,000
    
    
    
    
    
    
    
    9.90
    
    
    
    2/20/201315,000
    (1)
    
    
    5,000
    (1)
    
    
    10.35
    
    
    
    2/17/201515,000
    (2)
    
    
    15,000
    (2)
    
    
    22.67
    
    
    
    2/09/20167,500
    (3)
    
    
    22,500
    (3)
    
    
    13.02
    
    
    
    3/01/2017
    
    
    
    31,500
    (4)
    
    
    2.62
    
    
    
    3/13/2018
    
    
    
    13,500
    (5)
    
    
    3.05
    
    
    
    6/11/2018
 
 12




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(1)
    
    These options vest in four equal annual installments with the first installment vesting on
February 16, 2006.(2)
    
    These options vest in four equal annual installments with the first installment vesting on
February 9, 2007.(3)
    
    These options vest in four equal annual installments with the first installment vesting on
March 1, 2008.(4)
    
    These options vest in four equal annual installments with the first installment vesting on
March 13, 2009.(5)
    
    These options vest in four equal annual installments with the first installment vesting on
June 11, 2009.(6)
    
    Options to purchase 75,000 shares of our common stock were cancelled on January 30, 2009 in
connection with Benjamin L. Palleikos termination of employment. The remaining vested options
to purchase 75,000 shares of our common stock expire on January 21, 2010.(7)
    
    Options to purchase 22,500 shares of our common stock were cancelled on January 30, 2009 in
connection with Benjamin L. Palleikos termination of employment. The remaining vested options
to purchase 7,500 shares of our common stock expire on January 21, 2010.(8)
    
    On January 30, 2009, in connection with the termination of Benjamin L. Palleikos employment,
we agreed to accelerate the vesting of options to purchase 11,375 shares of our common stock
which were scheduled to vest on March 13, 2009. These accelerated options expire on January 21,
2010. The remaining options to purchase 34,125 shares of our common stock were cancelled.(9)
    
    On January 30, 2009, in connection with the termination of Benjamin L. Palleikos employment,
we agreed to accelerate the vesting of options to purchase 4,875 shares of our common stock
which were scheduled to vest on June 11, 2009. These accelerated options expire on January 21,
2010. The remaining options to purchase 14,625 shares of our common stock were cancelled.(10)
    
    These options vest in four equal installments with the first installment vesting on May 2, 2008. Option Exercises and Stock Vested During 2008
  Potential Payments Upon Termination or Change in Control
   13




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
    
    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 over a period of 24 months (in the case of our chief executive
officer) and over a period of 18 months (in the case of our other
executive officers), this period is referred to as a payment period;
    
    we will, during the payment period, continue to provide benefits to
the executive and his or her family at least equal to those that would
have been provided had the executives employment not been terminated;
provided that our obligation to provide these benefits will terminate
when and if the executive subsequently receives the same type of
benefits from a new employer; 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.
   Acceleration ofContinuing
    
    StockName
    
    Base Salary
    
    Bonus
    
    Benefits
    
    Options(1)Jennifer L. Good
    
    $
    774,000
    
    
    $
    309,600
    
    
    $
    67,195
    
    
    $
    Benjamin L. Palleiko(2)
    
    
    451,500
    
    
    
    135,450
    
    
    
    31,664
    
    
    
    Thomas R. Sciascia, M.D.
    
    
    465,000
    
    
    
    139,500
    
    
    
    31,664
    
    
    
    Amale Hawi, Ph.D.
    
    
    422,400
    
    
    
    126,720
    
    
    
    11,794
    
    
    
    Anand R. Baichwal, Ph.D.
    
    
    372,000
    
    
    
    111,600
    
    
    
    31,664
    
    
    
    
 
 (1)
    
    This amount would be determined by multiplying the number of option
shares that would accelerate, assuming a December 31, 2008 employment
termination, by the excess of $1.57 over the exercise price of the
option. $1.57 is the closing price of our common stock on the NASDAQ
Global Market on December 31, 2008, the last day of trading in fiscal
year 2008. As of December 31, 2008, all exercisable stock options had
an exercise price above $1.57.(2)
    
    Mr. Palleikos employment terminated in January 2009. Compensation of Directors
  Annual Fees
  Annual retainer as a director
    
    $
    20,000Additional annual retainer for chairman of the board
    
    
    15,000Additional annual retainer for audit committee chair
    
    
    15,000Additional annual retainer for other audit committee members
    
    
    5,000Additional annual retainer for other board committee chairs
    
    
    10,000Additional annual retainer for other board committee members
    
    
    3,000
 14




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##### Table of Contents



Meeting Fees
  Equity Compensation
   Expense Reimbursement
   2008 Director Compensation
 Fees Earned orPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    TotalName(1)
    
    ($)(2)
    
    ($)(3)
    
    ($)(3)
    
    ($)Christophe Bianchi, M.D.
    
    $
    30,500
    
    
    $
    132,977
    
    
    $
    
    
    
    $
    163,477Peter F. Drake, Ph.D.
    
    
    34,502
    
    
    
    55,082
    
    
    
    
    
    
    
    89,584Paul E. Freiman
    
    
    55,504
    
    
    
    86,328
    
    
    
    
    
    
    
    141,832Robert J. Hennessey
    
    
    33,998
    
    
    
    86,328
    
    
    
    
    
    
    
    120,326David P. Meeker, M.D.
    
    
    45,000
    
    
    
    121,618
    
    
    
    
    
    
    
    166,618W. James OShea
    
    
    34,248
    
    
    
    135,829
    
    
    
    
    
    
    
    170,077John N. Staniforth, Ph.D.
    
    
    30,500
    
    
    
    86,328
    
    
    
    
    
    
    
    116,828Anne M. VanLent
    
    
    45,500
    
    
    
    86,328
    
    
    
    579
    
    
    
    132,407
 
 (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 13,965 shares of common stock in lieu of $34,502 of cash fees;
    
    Mr. Freiman received 4,837 shares of common stock in lieu of $10,505 of cash fees;
 15




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##### Table of Contents




    
    Mr. Hennessey received 1,386 shares of common stock in lieu of $7,498 of cash fees;
    
    Mr. OShea received 13,513 shares of common stock in lieu of $31,998 of cash fees; and
    
    Dr. Staniforth received 7,573 shares of common stock in lieu of $20,000 of cash fees.
 
 (3)
    
    Represents the amount of compensation cost that we recognized for financial statement reporting
purposes for fiscal year 2008 with respect to restricted stock and option awards granted in fiscal
year 2008 and previous fiscal years, as computed in accordance with SFAS No. 123R. The amounts
disregard the estimate of forfeitures related to service-based vesting conditions. See Note 11 to
the financial statements in our Form 10-K for the year ended December 31, 2008 filed with the SEC
on March 16, 2009 regarding assumptions we made in determining the SFAS No. 123R fair values of
equity awards. The following table shows the grant date fair values of stock grants awarded to our
non-employee directors during 2008 as determined in accordance with SFAS No. 123R, the aggregate
number of unvested stock awards held by each of our non-employee directors as of December 31,
2008, and the aggregate number of shares subject to options held by each of our non-employee
directors as of December 31, 2008. There were no option awards made to our non-employee directors
during 2008. AggregateNumber ofGrant Date Fair
    
    Unvested Stock
    
    Aggregate NumberValue of 2008 Stock
    
    Awards as of
    
    of Option AwardsName
    
    Awards
    
    12/31/08
    
    as of 12/31/08Christophe Bianchi, M.D.
    
    $
    32,460
    
    
    
    21,000
    
    
    
    Peter F. Drake, Ph.D.
    
    
    32,460
    
    
    
    11,000
    
    
    
    Paul E. Freiman
    
    
    32,460
    
    
    
    15,000
    
    
    
    69,380Robert J. Hennessey
    
    
    32,460
    
    
    
    15,000
    
    
    
    63,567David P. Meeker, M.D.
    
    
    32,460
    
    
    
    21,000
    
    
    
    W. James OShea
    
    
    32,460
    
    
    
    21,000
    
    
    
    John N. Staniforth, Ph.D.
    
    
    32,460
    
    
    
    15,000
    
    
    
    90,512Anne M. VanLent
    
    
    32,460
    
    
    
    15,000
    
    
    
    83,288
 Compensation Committee Interlocks and Insider Participation
   Compensation Committee Report
  
 Chair
 16




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
 STOCKHOLDER MATTERS
 Security Ownership of Certain Beneficial Owners and Management
    Amount and Nature of BeneficialOwnershipName and Address of Beneficial Owner
    
    Number of Shares
    
    PercentageTang Capital Management, LLC and Related Persons
    
    
    6,695,598
    (1)
    
    
    21.1
    %4401
Eastgate Mall
San Diego, CA 92121Perceptive Advisors and Related Persons
    
    
    6,476,446
    (2)
    
    
    20.4
    %499 Park Avenue, 25th Floor
New York, NY 10022Deerfield Partners and Related Persons
    
    
    2,946,475
    (3)
    
    
    9.3
    %780 Third Avenue, 37th Floor
New York, NY 10017D.E. Shaw & Co., L.P.
    
    
    2,626,501
    (4)
    
    
    8.3
    %120 W. 45th Street, Tower 45, 39th Floor
New York, NY 10036Franklin Resources, Inc.
    
    
    2,049,435
    (5)
    
    
    6.5
    %One Franklin Parkway
San Mateo, CA 94403Directors and Director Nominees:Christophe Bianchi, M.D.
    
    
    26,000
    
    
    
    *Peter F. Drake, Ph.D.
    
    
    67,439
    
    
    
    *Paul E. Freiman
    
    
    93,760
    (6)
    
    
    *Jennifer L. Good
    
    
    377,454
    (7)
    
    
    1.2
    %Robert J. Hennessey
    
    
    124,369
    (8)
    
    
    *David P. Meeker, M.D.
    
    
    26,000
    
    
    
    *W. James OShea
    
    
    40,483
    
    
    
    *John N. Staniforth, Ph.D.
    
    
    153,683
    (9)
    
    
    *Anne M. VanLent
    
    
    119,288
    (10)
    
    
    *Joseph Edelman
    
    
    6,476,446
    (2)
    
    
    20.4
    %Other Named Executive Officers:Anand R. Baichwal, Ph.D.
    
    
    163,305
    (11)
    
    
    *Amale Hawi, Ph.D.
    
    
    58,750
    (12)
    
    
    *Benjamin L. Palleiko
    
    
    101,250
    (13)
    
    
    *Thomas R. Sciascia, M.D.
    
    
    262,279
    (14)
    
    
    *All executive officers and directors as a group (13 persons)
    
    
    1,614,060
    
    
    
    4.9
    %
 
 *
    
    Represents beneficial ownership of less than 1%. 17




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##### Table of Contents



(1)
    
    The foregoing information is based solely on a Schedule 13D/A filed
with the Securities and Exchange Commission on March 30, 2009. 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.(2)
    
    The foregoing information is based solely on a Schedule 13D/A filed
with the Securities and Exchange Commission on March 30, 2009.
Perceptive Advisors LLC and Mr. Joseph Edelman report having shared
voting power and shared dispositive power for 6,476,446 shares. In
addition, Perceptive Advisors LLC owns a warrant to purchase
925,000 shares of the companys common stock; however, the warrant is
not currently exercisable because of exercise restrictions set forth
therein and such shares of common stock are not included in the
beneficial ownership amount set forth in the table above.(3)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the Securities and Exchange Commission on February 13, 2009.
Deerfield Capital, L.P. reports having shared voting power and shared
dispositive power for 1,037,928 shares. Deerfield Partners, L.P.
reports having shared voting power and shared dispositive power for
286,212 shares. Deerfield Special Situations Fund, L.P. reports having
shared voting power and shared dispositive power for 751,716 shares,
including warrants to purchase 230,332 shares of Common Stock.
Deerfield Management Company, L.P. reports having shared voting power
and shared dispositive power for 1,908,547 shares. Deerfield
International Fund Limited reports having shared voting power and
shared dispositive power for 495,788 shares. Deerfield Special
Situations International Limited reports having shared voting power
and shared dispositive power for 1,412,759 shares, including warrants
to purchase 418,493 shares of Common Stock. James E. Flynn reports
having shared voting power and shared dispositive power for
2,946,475 shares.(4)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the Securities and Exchange Commission on February 17, 2009.
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 2,626,501 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 2,626,501 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 2,626,501 shares.(5)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the Securities and Exchange Commission on February 9, 2009.
Franklin Advisers, Inc. (FAI) reports having sole voting power and
sole dispositive power for 1,201,000 shares, and Franklin Templeton
Portfolio Advisors, Inc. (FTPAI) reports having sole voting power
and sole dispositive power for 848,435 shares. The securities reported
are beneficially owned by one or more open or closed-ended investment
companies or other managed accounts that are investment management
clients of investment managers that are direct and indirect
subsidiaries of Franklin Resources, Inc. (FRI). Investment
management contracts grant to such subsidiaries, including FAI and
FTPAI, all investment and/or voting power over the securities owned by
such investment management clients, unless otherwise reported. Charles
B. Johnson and Rupert H. Johnson, Jr. each own in excess of 10% of the
outstanding common stock of FRI and are the principal stockholders of
FRI. FRI, Charles B. Johnson, Rupert H. Johnson, Jr. and each of its
investment management subsidiaries, including FAI and FTPAI, disclaim
any pecuniary interests in any of the shares.(6)
    
    Includes 61,039 shares subject to outstanding stock options held by
Mr. Freiman that are exercisable within 60 days following March 12,
2009.(7)
    
    Includes 368,500 shares subject to outstanding stock options held by
Ms. Good that are exercisable within 60 days following March 12, 2009.(8)
    
    Includes 63,567 shares subject to outstanding stock options held by
Mr. Hennessey that are exercisable within 60 days following March 12,
2009.(9)
    
    Includes 81,635 shares subject to outstanding stock options held by
Dr. Staniforth that are exercisable within 60 days following
March 12, 2009. 18




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##### Table of Contents



(10)
    
    Includes 74,876 shares subject to outstanding stock options held by
Ms. VanLent that are exercisable within 60 days following 
March 12,
2009.(11)
    
    Includes 140,375 shares subject to outstanding stock options held by
Dr. Baichwal that are exercisable within 60 days following March 12,
2009.(12)
    
    Includes 58,750 shares subject to outstanding stock options held by
Dr. Hawi that are exercisable within 60 days following March 12,
2009.(13)
    
    Includes 98,750 shares subject to outstanding stock options held by
Mr. Palleiko that are exercisable within 60 days following March 12,
2009.(14)
    
    Includes 257,375 shares subject to outstanding stock options held by
Dr. Sciascia that are exercisable within 60 days following March 12,
2009. Securities Authorized for Issuance Under Equity Compensation Plans
  Equity Compensation Plan Information
 Number of
    
    
    
    
    
    
    Number of SharesShares to be
    
    
    
    
    
    
    Remaining AvailableIssued Upon
    
    
    
    
    
    
    for Future IssuanceExercise of
    
    
    Weighted-Average
    
    
    Under EquityOutstanding
    
    
    Exercise Price of
    
    
    Compensation PlansOptions,
    
    
    Outstanding
    
    
    (Excluding SharesWarrants and
    
    
    Options, Warrants
    
    
    Reflected inRights
    
    
    and Rights
    
    
    Column A)Plan Category
    
    (Column A)
    
    
    (Column B)
    
    
    (Column C)Equity compensation
plans that have
been approved by
shareholders
    
    
    2,514,252
    
    
    $
    12.28
    
    
    
    2,421,700Equity compensation
plans that have not
been approved by
our shareholders
    
    
    
    
    
    $
    
    
    
    
    Total
    
    
    2,514,252
    
    
    $
    12.28
    
    
    
    2,421,700
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 Certain Relationships and Transactions with Related Persons
 Related Person Transactions
  19




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##### Table of Contents



Policy and Procedures for Related Person Transactions
    
    
    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.
  Board Independence
   
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 Fee Category
    
    2008
    
    
    2007Audit Fees(1)
    
    $
    492,000
    
    
    $
    465,000Audit-Related Fees(2)
    
    
    42,000
    
    
    
    42,000Tax Fees(3)
    
    
    70,000
    
    
    
    153,500All Other Fees(4)
    
    
    3,000
    
    
    
    2,525Total Fees
    
    $
    607,000
    
    
    $
    663,025
 
 20




---



##### Table of Contents



(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.(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 2008 and 2007, 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 2008 and 2007 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 2008 also included tax consulting services in connection with
our review of the ownership change provisions of Section 382 of the
Internal Revenue Code. Tax fees in 2007 also included tax consulting
fees in connection with our adoption of the provisions of Financial
Accounting Standards Board (FASB) Interpretation No. 48, Accounting
For Uncertainty in Income Taxes  an interpretation of FASB Statement
No. 109.(4)
    
    In 2008 and 2007, all other fees related to a subscription to the
Ernst & Young Global Accounting and Auditing Information Tool.    21




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND 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.
 22




---



##### Table of Contents



SIGNATURES
  Penwest Pharmaceuticals Co./s/ Jennifer L. GoodJennifer L. GoodPresident and Chief Executive Officer  23




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##### Table of Contents



Exhibit Index
 Filed withExhibit

    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber

    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number3.1
    
    
    Amended and Restated Articles of
Incorporation of the Registrant
    
    
    
    10-Q
    
    8/3/2004
    
    000-234673.2
    
    
    Amended and Restated Bylaws of the Registrant
    
    
    
    S-1
    
    10/21/1997
    
    333-383893.3
    
    
    Amendment to Amended and Restated Bylaws of
the Registrant
    
    
    
    8-K
    
    11/13/2007
    
    000-234673.4
    
    
    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
    
    000-234674.1
    
    
    Specimen certificate representing the Common
Stock
    
    
    
    S-1/A
    
    12/17/1997
    
    333-3838910.1
    
    
    Product Development and Supply Agreement
dated August 17, 1994 by and between the
Registrant and Mylan Pharmaceuticals Inc.
    
    
    
    S-1
    
    10/21/1997
    
    333-3838910.2
    
    
    Sales and Distribution Agreement dated
January 3, 1997 by and between the
Registrant and Mylan Pharmaceuticals Inc.
    
    
    
    S-1
    
    10/21/1997
    
    333-3838910.3
    
    
    Letter Agreement dated February 25, 2000 by
and between the Registrant Mylan
Pharmaceuticals Inc.
    
    
    
    10-Q
    
    8/14/2000
    
    000-2346710.4
    
    
    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
    
    000-2346710.5
    
    
    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
    
    000-2346710.6
    
    
    1997 Equity Incentive Plan
    
    
    
    S-1
    
    10/21/1997
    
    333-38389
 24




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##### Table of Contents



Filed withExhibit
    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber
    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number10.7
    
    1997 Employee Stock Purchase Plan
    
    
    
    S-1
    
    10/21/1997
    
    333-3838910.8
    
    1998 Spinoff Option Plan
    
    
    
    10/A
    
    7/7/1998
    
    000-2346710.9
    
    Recognition and Incentive Agreement dated as
of May 14, 1990 between the Registrant and
Anand Baichwal, as amended
    
    
    
    S-1/A
    
    11/10/1997
    
    333-3838910.10
    
    Termination Agreement dated as of
February 1, 2007 by and between Anand
Baichwal and the Registrant
    
    
    
    8-K
    
    2/5/2007
    
    000-2346710.11
    
    Royalty Agreement dated September 25, 1992
between the Registrant and John N.
Staniforth
    
    
    
    10-Q
    
    5/15/2002
    
    000-2346710.12
    
    Termination Agreement dated as of
February 1, 2007 by and between John
Staniforth and the Registrant
    
    
    
    8-K
    
    2/5/2007
    
    000-2346710.13
    
    Confidentiality, Consulting and
Noncompetition Agreement dated September 25,
1992 between the Registrant and John N.
Staniforth
    
    
    
    10-Q
    
    5/15/2002
    
    000-2346710.14
    
    Lease Agreement dated as of February 3, 2003
by and between Union Carbide Corporation and
the Registrant
    
    
    
    10-Q
    
    5/15/2003
    
    000-2346710.15
    
    Lease Amendment and Attornment Agreement,
dated March 15, 2004, by and between Union
Carbide Corporation and the Registrant
    
    
    
    10-Q
    
    8/3/2004
    
    000-2346710.16
    
    Second Amendment to Lease dated as of
June 6, 2006 by and among Danbury Buildings,
Inc., Union Carbide Corporation and the
Registrant
    
    
    
    10-Q
    
    8/8/2007
    
    000-2346710.17
    
    Third Amendment to Lease dated as of
April 13, 2007 by and among Danbury Building
Co., L.P. and the Registrant
    
    
    
    10-Q
    
    8/8/2007
    
    000-2346710.18
    
    Form of Option Agreement for 1997 Incentive
Plan
    
    
    
    10-K
    
    3/16/05
    
    000-23467
 25




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##### Table of Contents



Filed withExhibit
    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber
    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number10.19
    
    Severance and Settlement Agreement and
Release dated February 14, 2005 by and
between the Registrant and Tod R. Hamachek
    
    
    
    10-Q
    
    5/9/2005
    
    000-2346710.20
    
    2005 Stock Incentive Plan, as amended
    
    
    
    10-Q
    
    8/8/2008
    
    000-2346710.21
    
    Amendment No. 1 to 2005 Stock Incentive Plan
    
    
    
    10-Q
    
    11/9/06
    
    000-2346710.22
    
    Form of Incentive Stock Option Agreement
for grants under 2005 Stock Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.23
    
    Form of Employee Nonstatutory Stock Option
Agreement for grants under 2005 Stock
Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.24
    
    Form of Nonstatutory Stock Option Agreement
(Consultants and Directors) for grants
under 2005 Stock Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.25
    
    Form of Director Restricted Stock Agreement
for grants under 2005 Stock Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.26
    
    Summary of Executive Officer Bonus Program
    
    
    
    10-K
    
    3/16/2009
    
    000-2346710.27
    
    Summary of the Director Compensation Program
    
    
    
    10-K
    
    3/16/2009
    
    000-2346710.28
    
    Manufacture and Supply Agreement dated
November 6, 2006 between the Registrant and
Draxis Specialty Pharmaceuticals Inc.
    
    
    
    10-K
    
    3/16/2007
    
    000-23467
 26




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##### Table of Contents



Filed withExhibit
    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber
    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number10.29
    
    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
    
    000-2346710.30
    
    Collaboration and License Agreement dated
as of July 16, 2007 by and between Edison
Pharmaceuticals, Inc. and the Registrant
    
    
    
    10-Q
    
    11/8/2007
    
    000-2346710.31
    
    Securities Purchase Agreement dated
March 5, 2008, among the Registrant and the
purchasers party thereto
    
    
    
    8-K
    
    3/6/2008
    
    000-2346710.32
    
    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
    
    000-2346710.33
    
    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
    
    000-2346710.34
    
    Form of Executive Retention Agreements
entered into by the Registrant and each of
its Executive Officers
    
    
    
    10-K
    
    3/16/2009
    
    000-2346723
    
    Consent of Ernst & Young LLP
    
    
    
    10-K
    
    3/16/2009
    
    000-2346731
    
    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
    
    X32
    
    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
    
    3/16/2009
    
    000-23467
 
 
    
    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. 27