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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 22Suite 2Patterson, 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 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 GOVERNANCE
    
    
    4ITEM 11. EXECUTIVE COMPENSATION
    
    
    8ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    23ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
    
    
    25ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    26PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    27SIGNATURES
    
    
    28Exhibit Index
    
    
    29EX-31
  2




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PENWEST PHARMACEUTICALS CO.
 EXPLANATORY NOTE
  3




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Information about our Board of Directors
           4




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Tang Capital
Partners, et al. v. Penwest Pharmaceuticals Co. Tang Capital Partners,
et al. v. Penwest Pharmaceuticals Co.
    5




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6




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Information about our Executive Officers
  Name
    
    Age
    
    Title
    
    DatesJennifer L. Good
    
    
    45
    
    
    President and Chief Executive Officer
    
    2006  currentPresident, Chief Operating Officer
and Chief Financial Officer
    
    2005  2006Senior Vice President, Finance and
Chief Financial Officer
    
    1997  2005Anand R. Baichwal, Ph.D.
    
    
    55
    
    
    Senior Vice President, Licensing and
Business Development
    
    2006  currentSenior Vice President, Research &
New Technology Development and Chief
Scientific Officer
    
    1997  2006Amale Hawi, Ph.D.
    
    
    56
    
    
    Senior Vice President,
Pharmaceutical Development
    
    2007  currentPresident, A. Hawi Consulting Ltd.,
a pharmaceutical development
consulting practice
    
    2002  2007Frank P. Muscolo
    
    
    53
    
    
    Controller and Chief Accounting
Officer
    
    2007  currentController
    
    1997  2007Thomas Sciascia, M.D.
    
    
    56
    
    
    Senior Vice President, Clinical
Development and Regulatory and Chief
Medical Officer
    
    2009  currentSenior Vice President and Chief
Medical Officer
    
    2001  2009
 Audit Committee
   Code of Business Conduct and Ethics
 www.penwest.com
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##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance
  
    
    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
  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;
    
    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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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.
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##### Table of Contents



Base Salary
   Base SalaryExecutive Officer
    
    for 2009Jennifer L. Good,
    
    $
    387,000President and Chief Executive 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
  Base SalaryExecutive Officer
    
    for 2010Jennifer L. Good,
    
    $
    410,000President and Chief Executive OfficerThomas R. Sciascia, M.D.,
    
    $
    319,000Senior Vice President, Clinical and Regulatory Affairs and Chief Medical OfficerAmale Hawi, Ph.D.,
    
    $
    290,000Senior Vice President, Pharmaceutical DevelopmentAnand R. Baichwal, Ph.D.,
    
    $
    258,000Senior Vice President, Licensing and Business Development
 Annual Cash Incentive Bonus Plan
  10




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2009 Goals
 WeightingManage 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
    %
  
    
    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%.
  11




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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.
  2009 Annual2009 Bonus
    
    
    Cash Bonus
    
    
    Percentage ofNamed Executive Officer
    
    Targets
    
    
    Payments
    
    
    Bonus TargetJennifer L. Good
    
    $
    154,800
    
    
    $
    139,000
    
    
    
    90
    %President and Chief Executive OfficerThomas R. Sciascia, M.D.
    
    $
    93,000
    
    
    $
    77,000
    
    
    
    83
    %Senior Vice President, Clinical and Regulatory Affairs and Chief Medical OfficerAmale Hawi, Ph.D.
    
    $
    84,480
    
    
    $
    74,000
    
    
    
    88
    %Senior Vice President, Pharmaceutical DevelopmentAnand R. Baichwal, Ph.D.
    
    $
    74,400
    
    
    $
    67,000
    
    
    
    90
    %Senior Vice President, Licensing and Business Development
  Stock Option Awards
    12




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Number of SharesSubject to StockExecutive Officer
    
    Options GrantedJennifer L. Good,
    
    
    100,000President and Chief Executive OfficerThomas R. Sciascia, M.D.,
    
    
    65,000Senior Vice President, Clinical and Regulatory Affairs and Chief Medical OfficerAmale Hawi, Ph.D.,
    
    
    65,000Senior Vice President, Pharmaceutical DevelopmentAnand R. Baichwal, Ph.D.,
    
    
    50,000Senior Vice President, Licensing and Business Development
  Severance/Change in Control Benefits
 Retention Agreements
   13




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Severance
  Benefits and Other Compensation
    14




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Tax Considerations
  Risks Arising from Compensation Policies and Practices
  Executive Compensation
 Summary Compensation
  Summary Compensation Table
 Non-EquityIncentiveOption
    
    
    Plan
    
    
    All OtherSalary
    
    
    Bonus
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    TotalName and Principal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)(1)
    
    
    ($)(2)
    
    
    ($)
    
    
    ($)Jennifer L. Good(3)
    
    
    2009
    
    
    $
    398,130
    
    
    $
    
    
    
    $
    98,000
    
    
    $
    139,000
    
    
    $
    24,600
    (4)
    
    $
    659,730President and
    
    
    2008
    
    
    
    381,374
    
    
    
    
    
    
    
    178,600
    
    
    
    92,880
    
    
    
    23,925
    
    
    
    676,779Chief Executive Officer
    
    
    2007
    
    
    
    369,339
    
    
    
    45,000
    
    
    
    453,050
    
    
    
    
    
    
    
    23,700
    
    
    
    891,089Benjamin L. Palleiko(5)
    
    
    2009
    
    
    
    29,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241,885
    (6)
    
    
    271,116Former Senior Vice President,
    
    
    2008
    
    
    
    296,028
    
    
    
    
    
    
    
    116,090
    
    
    
    36,120
    
    
    
    18,475
    
    
    
    466,713Corporate Development and
    
    
    2007
    
    
    
    287,878
    
    
    
    29,200
    
    
    
    209,100
    
    
    
    
    
    
    
    17,478
    
    
    
    543,656Chief Financial OfficerThomas R. Sciascia, M.D.
    
    
    2009
    
    
    
    318,991
    
    
    
    
    
    
    
    63,700
    
    
    
    77,000
    
    
    
    17,535
    (7)
    
    
    447,226Senior Vice President,
    
    
    2008
    
    
    
    305,086
    
    
    
    
    
    
    
    116,090
    
    
    
    55,800
    
    
    
    17,707
    
    
    
    494,683Clinical and Regulatory Affairs
and
    
    
    2007
    
    
    
    294,652
    
    
    
    30,000
    
    
    
    313,650
    
    
    
    
    
    
    
    17,773
    
    
    
    656,075Chief Medical OfficerAmale Hawi, Ph.D.(8)
    
    
    2009
    
    
    
    292,099
    
    
    
    
    
    
    
    63,700
    
    
    
    74,000
    
    
    
    12,180
    (9)
    
    
    441,979Senior Vice President,
    
    
    2008
    
    
    
    279,565
    
    
    
    
    
    
    
    89,300
    
    
    
    63,360
    
    
    
    11,505
    
    
    
    443,730Pharmaceutical Development
    
    
    2007
    
    
    
    172,404
    
    
    
    
    
    
    
    684,000
    
    
    
    18,425
    
    
    
    4,011
    
    
    
    878,840Anand R. Baichwal, Ph.D.
    
    
    2009
    
    
    
    254,607
    
    
    
    
    
    
    
    49,000
    
    
    
    67,000
    
    
    
    12,600
    (10)
    
    
    383,207Senior Vice President, Licensing
    
    
    2008
    
    
    
    244,334
    
    
    
    
    
    
    
    80,370
    
    
    
    40,920
    
    
    
    11,925
    
    
    
    377,549and Business Development
    
    
    2007
    
    
    
    234,652
    
    
    
    24,000
    
    
    
    209,100
    
    
    
    
    
    
    
    11,700
    
    
    
    479,452
 15




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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. 16




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Employment Letter Arrangements and Other Agreements with our Named Executive Officers
   Grants of Plan-Based Awards During 2009
  2009 Grants of Plan-Based Awards
 All OtherOptionAwards:
    
    
    
    
    
    
    GrantNumber of
    
    
    Exercise or
    
    
    DateEstimated Future Payouts Under
    
    
    
    
    
    
    Securities
    
    
    Base Price
    
    
    FairNon-Equity Incentive Plan Awards
    
    
    
    
    
    
    Underlying
    
    
    of Option
    
    
    Value ofThreshold
    
    
    Target
    
    
    Maximum
    
    
    Grant
    
    
    Options
    
    
    Awards
    
    
    OptionName
    
    ($)
    
    
    ($)(1)
    
    
    ($)
    
    
    Date
    
    
    (2)
    
    
    ($/Sh)(3)
    
    
    Awards(4)Jennifer L. Good
    
    
    
    
    
    
    
    
    
    
    154,800
    
    
    
    3/5/09
    
    
    
    100,000
    
    
    $
    1.56
    
    
    $
    98,000Benjamin L. Palleiko
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Thomas Sciascia, M.D.
    
    
    
    
    
    
    
    
    
    
    93,000
    
    
    
    3/5/09
    
    
    
    65,000
    
    
    
    1.56
    
    
    
    63,700Amale Hawi, Ph.D.
    
    
    
    
    
    
    
    
    
    
    84,480
    
    
    
    3/5/09
    
    
    
    65,000
    
    
    
    1.56
    
    
    
    63,700Anand 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. 17




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Outstanding Equity Awards at 2009 Fiscal Year-End
  2009 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
    
    2/12/201445,000
    
    
    
    10.35
    
    2/17/201550,000
    
    
    
    16.14
    
    11/23/201537,500(1)
    
    12,500(1)
    
    22.67
    
    2/09/201632,500(2)
    
    32,500(2)
    
    13.02
    
    3/01/201717,500(3)
    
    52,500(3)
    
    2.62
    
    3/13/20187,500(4)
    
    22,500(4)
    
    3.05
    
    6/11/2018
    
    100,000(5)
    
    1.56
    
    3/5/2019Benjamin L. Palleiko
    
    75,000
    
    (7)
    
    17.15
    
    1/21/20107,500
    
    (7)
    
    13.02
    
    1/21/201011,375
    
    (7)(8)
    
    2.62
    
    1/21/20104,875
    
    (7)(8)
    
    3.05
    
    1/21/2010Thomas 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
    
    2/12/201435,000
    
    
    
    10.35
    
    2/17/201522,500(1)
    
    7,500(1)
    
    22.67
    
    2/09/201622,500(2)
    
    22,500(2)
    
    13.02
    
    3/01/201711,375(3)
    
    34,125(3)
    
    2.62
    
    3/13/20184,875(4)
    
    14,625(4)
    
    3.05
    
    6/11/2018
    
    65,000(5)
    
    1.56
    
    3/5/2019Amale Hawi, Ph.D.
    
    50,000(6)
    
    50,000(6)
    
    12.09
    
    5/02/20178,750(3)
    
    26,250(3)
    
    2.62
    
    3/13/20183,750(4)
    
    11,250(4)
    
    3.05
    
    6/11/2018
    
    65,000(5)
    
    1.56
    
    3/5/2019Anand 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
    
    2/20/201320,000
    
    
    
    10.35
    
    2/17/201522,500(1)
    
    7,500(1)
    
    22.67
    
    2/09/201615,000(2)
    
    15,000(2)
    
    13.02
    
    3/01/20177,875(3)
    
    23,625(3)
    
    2.62
    
    3/13/20183,375(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. 18




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##### Table of Contents



(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
  Potential Payments Upon Termination or Change in Control
   
    
    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.
  Severance/Change in Control Benefits  Severance
 Continuing
    
    Additional
    
    Acceleration ofBase Salary
    
    Bonus
    
    Benefits
    
    Payments
    
    StockName
    
    ($)
    
    ($)
    
    ($)
    
    ($)(1)
    
    Options(2)($)Jennifer L. Good
    
    
    774,000
    
    
    
    309,600
    
    
    
    36,624
    
    
    
    10,000
    
    
    
    103,000Thomas R. Sciascia, M.D.
    
    
    465,000
    
    
    
    139,500
    
    
    
    31,041
    
    
    
    10,000
    
    
    
    66,950Amale Hawi, Ph.D.
    
    
    422,400
    
    
    
    126,720
    
    
    
    9,996
    
    
    
    10,000
    
    
    
    66,950Anand R. Baichwal, Ph.D.
    
    
    372,000
    
    
    
    111,600
    
    
    
    31,054
    
    
    
    10,000
    
    
    
    51,500
 19




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##### Table of Contents



(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
  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
  Meeting Fees
  Equity Compensation
   20




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##### Table of Contents



Expense Reimbursement
   2009 Director Compensation
 Fees Earned orPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    TotalName(1)
    
    ($)(2)
    
    ($)(3)
    
    ($)(4)
    
    ($)Christophe M. Bianchi, M.D.
    
    $
    42,250
    
    
    $
    
    
    
    $
    12,600
    
    
    $
    54,850Peter F. Drake, Ph.D.
    
    
    36,249
    
    
    
    30,300
    
    
    
    
    
    
    
    66,549Joseph E. Edelman(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paul E. Freiman
    
    
    60,250
    
    
    
    10,020
    
    
    
    
    
    
    
    70,270Robert J. Hennessey(6)
    
    
    17,750
    
    
    
    
    
    
    
    12,600
    
    
    
    30,350David P. Meeker, M.D.
    
    
    50,750
    
    
    
    
    
    
    
    12,600
    
    
    
    63,350W. James OShea(7)
    
    
    21,500
    
    
    
    
    
    
    
    12,600
    
    
    
    34,100John N. Staniforth, Ph.D.(8)
    
    
    11,500
    
    
    
    10,020
    
    
    
    
    
    
    
    21,520Kevin 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. 21




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##### Table of Contents



AggregateNumber ofUnvested Stock
    
    Aggregate NumberAwards as of
    
    of Option AwardsName
    
    12/31/09
    
    as of 12/31/09Christophe M. Bianchi, M.D.
    
    
    10,000
    
    
    
    12,000Peter F. Drake, Ph.D.
    
    
    18,000
    
    
    
    Joseph E. Edelman
    
    
    
    
    
    
    Paul E. Freiman
    
    
    12,000
    
    
    
    58,673Robert J. Hennessey
    
    
    
    
    
    
    73,568David P. Meeker, M.D.
    
    
    10,000
    
    
    
    12,000W. James OShea
    
    
    
    
    
    
    12,000John N. Staniforth, Ph.D.
    
    
    
    
    
    
    79,666Kevin C. Tang
    
    
    
    
    
    
    Anne M. VanLent
    
    
    6,000
    
    
    
    83,374
 Compensation Committee Interlocks and Insider Participation
   Compensation Committee Report
  
 Chair
 22




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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)
    
    
    21.0
    %4401 Eastgate MallSan Diego, CA 92121Perceptive Advisors and Related Persons
    
    
    6,476,446
    (2)
    
    
    20.4
    %499 Park Avenue, 25(th) FloorNew York, NY 10022D.E. Shaw & Co., L.P.
    
    
    2,515,771
    (3)
    
    
    7.9
    %120 W. 45(th) Street, Tower 45, 39th FloorNew York, NY 10036Directors 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. 23




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##### Table of Contents



(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
  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
    
    
    2,615,682
    
    
    $
    10.62
    
    
    
    2,157,006Equity compensation plans that have not been approved by our shareholders
    
    
    
    
    
    $
    
    
    
    
    Total
    
    
    2,615,682
    
    
    $
    10.62
    
    
    
    2,157,006
  24




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 Certain Relationships and Transactions with Related Persons
 Related Person Transactions
  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
   25




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  Fee Category
    
    2009
    
    
    2008Audit Fees(1)
    
    $
    400,000
    
    
    $
    492,000Audit-Related Fees(2)
    
    
    45,000
    
    
    
    42,000Tax Fees(3)
    
    
    52,900
    
    
    
    70,000All Other Fees(4)
    
    
    2,162
    
    
    
    3,000Total 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.    26




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##### Table of Contents



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.
 27




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##### Table of Contents



SIGNATURES
  Penwest Pharmaceuticals Co./s/ Jennifer L. GoodJennifer L. GoodPresident and Chief Executive Officer  28




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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, as amended
    
    
    
    S-8
    
    7/2/08
    
    333-1520863.3
    
    
    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
    
    000-234674.1
    
    
    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 and 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
    
    
    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
    
    000-2346710.7
    
    
    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
    
    000-3426710.8
    
    
    1997 Equity Incentive Plan
    
    
    
    S-1
    
    10/21/1997
    
    333-3838910.9
    
    
    1997 Employee Stock Purchase Plan
    
    
    
    S-1
    
    10/21/1997
    
    333-3838910.10
    
    
    1998 Spinoff Option Plan
    
    
    
    10/A
    
    7/7/1998
    
    000-2346710.11
    
    
    Recognition and Incentive Agreement dated as of May 14,
1990 between the Registrant and Anand Baichwal, as
amended
    
    
    
    S-1/A
    
    11/10/1997
    
    333-3838910.12
    
    
    Termination Agreement dated as of February 1, 2007 by
and between Anand Baichwal and the Registrant
    
    
    
    8-K
    
    2/5/2007
    
    000-2346710.13
    
    
    Form of Option Agreement for 1997 Incentive Plan
    
    
    
    10-K
    
    3/16/05
    
    000-2346710.14
    
    
    2005 Stock Incentive Plan, as amended
    
    
    
    10-Q
    
    8/8/2008
    
    000-2346710.15
    
    
    Amendment No. 1 to 2005 Stock Incentive Plan
    
    
    
    10-Q
    
    11/9/06
    
    000-2346710.16
    
    
    Form of Incentive Stock Option Agreement for grants
under 2005 Stock Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-23467
 29




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##### Table of Contents



Filed withExhibit
    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber
    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number10.17
    
    
    Form of Employee Nonstatutory Stock Option Agreement for
grants under 2005 Stock Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.18
    
    
    Form of Nonstatutory Stock Option Agreement (Consultants
and Directors) for grants under 2005 Stock Incentive
Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.19
    
    
    Form of Director Restricted Stock Agreement for grants
under 2005 Stock Incentive Plan
    
    
    
    8-K
    
    6/7/2005
    
    000-2346710.20
    
    
    Summary of Executive Officer Bonus Program
    
    
    
    10-K
    
    3/16/2009
    
    001-3426710.21
    
    
    Summary of the Director Compensation Program
    
    
    
    10-K
    
    3/16/2009
    
    001-3426710.22
    
    
    Manufacture and Supply Agreement dated November 6, 2006
between the Registrant and Draxis Specialty
Pharmaceuticals Inc.
    
    
    
    10-K
    
    3/16/2007
    
    000-2346710.23
    
    
    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
    
    000-2346710.24
    
    
    Collaboration and License Agreement dated as of July 16,
2007 by and between Edison Pharmaceuticals, Inc. and the
Registrant
    
    
    
    10-Q
    
    11/8/2007
    
    000-2346710.25
    
    
    Settlement Agreement dated May 5, 2009, by and between
Edison Pharmaceuticals, Inc. and the Company
    
    
    
    10-Q
    
    8/10/09
    
    000-3426710.26
    
    
    Securities Purchase Agreement dated March 5, 2008, among
the Registrant and the purchasers party thereto
    
    
    
    8-K
    
    3/6/2008
    
    000-2346710.27
    
    
    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
    
    000-2346710.28
    
    
    Rights Agreement, dated as of March 11, 2009, between
the Registrant and Mellon Investor Services, LLC, as
Rights Agent
    
    
    
    8-K
    
    03/12/2009
    
    000-2346710.29
    
    
    Severance and Settlement Agreement and Release, dated
January 30, 2009, by and between the Registrant and
Benjamin L. Palleiko
    
    
    
    10-Q
    
    05/11/2009
    
    001-3426710.30
    
    
    Lease dated February 27, 2003, by and between JRS Pharma
LP and the Registrant, as amended to date
    
    
    
    10-K
    
    3/16/2010
    
    001-3426723
    
    
    Consent of Ernst & Young LLP
    
    
    
    10-K
    
    3/16/2010
    
    001-3426731
    
    
    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
    
    3/16/2010
    
    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