##### Table of Contents



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, 2007
 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 
Suite 11
Danbury, Connecticut(Address of Principal Executive Offices)
    
    06810-5120(Zip Code)
 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
(Including Associated Preferred Stock Purchase Rights)
    
    The NASDAQ Stock Market
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
 o þ
 o þ
 þ 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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##### 



PENWEST PHARMACEUTICALS CO.
 EXPLANATORY NOTE
  INDEX TO FORM 10-K/A
 PART III
    
    
    1Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    1Item 11.
    
    Executive Compensation
    
    
    4Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    16Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    19Item 14.
    
    Principal Accounting Fees and Services
    
    
    21PART IV
    
    
    22Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    22Signatures
    
    
    
    
    23Ex-31.3 Section 302 Certification of PEOEx-31.4 Section 302 Certification of PFO
  Forward Looking Statements
  i




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Information about our Board of Directors
  
  
  
  
  1




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2




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Audit Committee
   Code of Business Conduct and Ethics
 www.penwest.com
  Section 16(a) Beneficial Ownership Reporting Compliance
  3




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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 and financial 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 executives incentives with the creation of shareholder value.
   th
 Components of our Executive Compensation Program
  
    
    base salary;
    
    annual cash incentive bonuses;
 4




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
    
    stock option awards;
    
    change of control benefits; and
    
    health and life insurance and other employee benefits.
  Base Salary
    Base SalaryExecutive Officer(1)
    
    for 2007Jennifer L. Good,
    
    $
    375,000President and Chief Executive OfficerBenjamin L. Palleiko,
    
    $
    292,000Senior Vice President, Corporate Development and Chief Financial OfficerThomas R. Sciascia, M.D.,
    
    $
    300,000Senior Vice President Clinical and Regulatory Affairs and Chief Medical OfficerAnand R. Baichwal, Ph.D.,
    
    $
    240,000Senior Vice President, Licensing and Chief Scientific Officer
 
 (1)
    
    These were our named executive officers and their titles as of
February 15, 2007. th
 5




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Annual Cash Incentive Bonus Plan
      2007 Annual2007 Bonus
    
    Cash BonusNamed Executive Officer
    
    Targets
    
    PaymentsJennifer L. Good
    
    $
    150,000
    
    
    $
    45,000President and Chief Executive OfficerBenjamin L. Palleiko
    
    $
    87,600
    
    
    $
    29,200Senior Vice President, Corporate Development and Chief Financial OfficerThomas R. Sciascia, M.D.
    
    $
    90,000
    
    
    $
    30,000Senior Vice
President, Clinical and Regulatory Affairs and Chief Medical
OfficerAnand R. Baichwal, Ph.D.
    
    $
    72,000
    
    
    $
    24,000Senior Vice President, Licensing and Chief Scientific OfficerAmale Hawi, Ph.D.
    
    $
    82,500
    (1)
    
    $
    18,425
    (2)Senior Vice President, Pharmaceutical Development
 6




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(1)
    
    We hired Dr. Hawi on May 2, 2007. Her target bonus for 2007 was established at $82,500,
which was 30% of Dr. Hawis 2007 base salary as established by the committee.(2)
    
    Prorated to reflect Dr. Hawis May 2, 2007 starting date. Stock Option Awards
        Number of SharesSubject to StockExecutive Officer(1)
    
    Options GrantedJennifer L. Good,
    
    
    65,000President and Chief Executive OfficerBenjamin L. Palleiko,
    
    
    30,000Senior Vice President Corporate Development and Chief Financial OfficerThomas R. Sciascia, M.D.
    
    
    45,000Senior Vice President Clinical and Regulatory Affairs and Chief Medical OfficerAnand R. Baichwal, Ph.D.,
    
    
    30,000Senior Vice President, Licensing and Chief Scientific Officer
 
 (1)
    
    These were our named executive officers and their titles as of
February 15, 2007. 7




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Severance/Change of Control Benefits
    Benefits and Other Compensation
   8




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Tax Considerations
  Executive Compensation
 Summary Compensation
  Summary Compensation Table
 Change inPensionNon-Equity
    
    Value andIncentive
    
    NonqualifiedStock
    
    Option
    
    Plan
    
    Deferred
    
    All OtherSalary
    
    
    
    
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    Compensation
    
    TotalName and Principal Position
    
    Year
    
    ($)
    
    Bonus
    
    ($)
    
    ($)(1)
    
    ($)(2)
    
    Earnings
    
    ($)
    
    ($)Jennifer L. Good (3)
    
    
    2007
    
    
    $
    369,339
    
    
    $
    45,000
    
    
    
    
    
    
    $
    458,702
    
    
    $
    
    
    
    
    
    
    
    $
    23,700
    (4)
    
    $
    896,741President and
Chief Executive Officer
    
    
    2006
    
    
    
    342,012
    
    
    
    
    
    
    
    
    
    
    
    762,386
    
    
    
    100,000
    
    
    
    
    
    
    
    25,236
    
    
    
    1,229,634Benjamin L. Palleiko
    
    
    2007
    
    
    
    287,878
    
    
    
    29,200
    
    
    
    
    
    
    
    699,549
    
    
    
    
    
    
    
    
    
    
    
    17,478
    (5)
    
    
    1,034,105Senior Vice President,
Corporate Development
and Chief Financial Officer
    
    
    2006
    
    
    
    141,680
    
    
    
    
    
    
    
    
    
    
    
    439,425
    
    
    
    68,400
    
    
    
    
    
    
    
    63,790
    
    
    
    713,295Thomas R. Sciascia, M.D.
    
    
    2007
    
    
    
    294,652
    
    
    
    30,000
    
    
    
    
    
    
    
    301,451
    
    
    
    
    
    
    
    
    
    
    
    17,773
    (6)
    
    
    643,876Senior Vice President
Clinical and Regulatory
Affairs and Chief Medical
Officer
    
    
    2006
    
    
    
    279,262
    
    
    
    
    
    
    
    
    
    
    
    294,288
    
    
    
    85,500
    
    
    
    
    
    
    
    16,691
    
    
    
    675,741Anand R. Baichwal, Ph.D.
    
    
    2007
    
    
    
    234,652
    
    
    
    24,000
    
    
    
    
    
    
    
    221,658
    
    
    
    
    
    
    
    
    
    
    
    11,700
    (7)
    
    
    492,010Senior Vice President,
Licensing and Chief
Scientific Officer
    
    
    2006
    
    
    
    218,860
    
    
    
    
    
    
    
    
    
    
    
    217,952
    
    
    
    54,000
    
    
    
    
    
    
    
    11,318
    
    
    
    502,130Amale Hawi, Ph.D.
    
    
    2007
    
    
    
    172,404
    
    
    
    
    
    
    
    
    
    
    
    237,706
    
    
    
    18,425
    
    
    
    
    
    
    
    4,011
    (8)
    
    
    432,546Senior Vice President,
Pharmaceutical Development
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Represents the amount of compensation cost that we recognized for financial statement reporting
purposes for fiscal years 2006 and 2007, as applicable, with respect to option awards granted in fiscal
years 2006 and 2007, 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 amounts disregard the estimate of forfeitures related to service-based vesting conditions.
See Note 9 of the financial statements in the Form 10-K regarding assumptions we made in determining
the FAS 123R value of equity awards.(2)
    
    The amounts in this column reflect payments made under the Executive Officer Bonus Program described in 9




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Compensation and Discussion Analysis and filed as Exhibit 10.29 to our Form 10-K for the year ended
December 31, 2006 filed with the SEC on March 16, 2007.(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;   $10,125 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)
    
    Consists of:   $5,778 in hotel and living expense reimbursements for those nights Mr. Palleiko stayed in Danbury, CT.   $10,125 in matching contributions under the Penwest Pharmaceuticals Co. Savings Plan; and   $1,575 in premiums paid on behalf of Mr. Palleiko for supplemental life and disability insurance
plans.(6)
    
    Consists of:   $6,073 in hotel and living expense reimbursements for those nights Dr. Sciascia stayed in Danbury, CT.   $10,125 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.(7)
    
    Consists of:   $10,125 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.   Payments made under the Royalty Termination Agreement are not included in the Summary Compensation
Table. Details of the transaction are discussed under Item 13. Certain Relationships and Related
Transactions, and Director Independence.(8)
    
    Consists of:   $2,856 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. Employment Letter Arrangements
   10




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Grants of Plan-Based Awards
  2007 Grants of Plan-Based Awards
 All OtherOptionAwards:
    
    
    
    
    
    GrantNumber of
    
    Exercise or
    
    DateEstimated Possible Payouts Under
    
    Securities
    
    Base Price
    
    FairNon-Equity Incentive Plan Awards(1)
    
    Underlying
    
    of Option
    
    Value ofGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Options
    
    Awards
    
    OptionName
    
    Date
    
    ($)
    
    ($)
    
    ($)
    
    (2)
    
    ($/Sh)(3)
    
    AwardsJennifer L. Good
    
    
    3/01/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    $
    13.02
    
    
    $
    453,050$
    150,000Benjamin L. Palleiko
    
    
    3/01/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    13.02
    
    
    
    209,10087,600Thomas R. Sciascia, M.D.
    
    
    3/01/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    13.02
    
    
    
    313,65090,000Anand R. Baichwal, Ph.D.
    
    
    3/01/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    13.02
    
    
    
    209,10072,000Amale Hawi, Ph.D.
    
    
    5/02/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    12.09
    
    
    
    684,00082,500
    (4)
 
 (1)
    
    This reflects the targets set for 2007 under the Executive Officer
Bonus Program, which is described in Exhibit 10.29 to our annual
report on Form 10-K for the year ended December 31, 2006. See
Compensation Discussion and Analysis  Components of our Executive
Compensation Program  Annual Cash Incentive Bonus Plan above for a
description of this plan. The bonuses for 2007 were not paid under
this program. Details of 2007 cash bonus payments are discussed under
Annual Cash Incentive Bonus Plan.(2)
    
    Options granted in 2007 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)
    
    Target bonus on an annual basis. Actual payout was pro-rated to
reflect Dr. Hawis May 2, 2007 starting date. Outstanding Equity Awards at Fiscal Year-End
  11




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2007 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
    
    
    110,000
    
    
    
    
    
    
    $
    6.75
    
    
    
    9/05/200822,000
    
    
    
    
    
    
    
    12.75
    
    
    
    2/02/201032,000
    
    
    
    
    
    
    
    12.00
    
    
    
    3/01/201132,000
    
    
    
    
    
    
    
    19.13
    
    
    
    2/14/201250,000
    
    
    
    
    
    
    
    9.90
    
    
    
    2/20/201337,500
    
    
    
    12,500
    (1)
    
    
    16.39
    
    
    
    2/12/201422,500
    (2)
    
    
    22,500
    (2)
    
    
    10.35
    
    
    
    2/17/201550,000
    
    
    
    
    
    
    
    16.14
    
    
    
    11/23/201512,500
    (3)
    
    
    37,500
    (3)
    
    
    22.67
    
    
    
    2/09/2016
    
    
    
    65,000
    (4)
    
    
    13.02
    
    
    
    3/01/2017Benjamin L. Palleiko
    
    
    37,500
    (5)
    
    
    112,500
    (5)
    
    
    17.15
    
    
    
    6/19/2016
    
    
    
    30,000
    (4)
    
    
    13.02
    
    
    
    3/01/2017Thomas R. Sciascia, M.D.
    
    
    75,000
    
    
    
    
    
    
    
    13.00
    
    
    
    3/06/201125,000
    
    
    
    
    
    
    
    19.13
    
    
    
    2/14/201236,000
    
    
    
    
    
    
    
    9.90
    
    
    
    2/20/201322,500
    
    
    
    7,500
    (1)
    
    
    16.39
    
    
    
    2/12/201417,500
    (2)
    
    
    17,500
    (2)
    
    
    10.35
    
    
    
    2/17/20157,500
    (3)
    
    
    22,500
    (3)
    
    
    22.67
    
    
    
    2/09/2016
    
    
    
    45,000
    (4)
    
    
    13.02
    
    
    
    3/01/2017Anand R. Baichwal, Ph.D.
    
    
    100,000
    
    
    
    
    
    
    
    6.75
    
    
    
    9/05/200815,000
    
    
    
    
    
    
    
    12.75
    
    
    
    2/02/201020,000
    
    
    
    
    
    
    
    12.00
    
    
    
    3/01/201120,000
    
    
    
    
    
    
    
    19.13
    
    
    
    2/14/201220,000
    
    
    
    
    
    
    
    9.90
    
    
    
    2/20/201310,000
    (2)
    
    
    10,000
    (2)
    
    
    10.35
    
    
    
    2/17/20157,500
    (3)
    
    
    22,500
    (3)
    
    
    22.67
    
    
    
    2/09/2016
    
    
    
    30,000
    (4)
    
    
    13.02
    
    
    
    3/01/2017Amale Hawi, Ph.D.
    
    
    
    
    
    
    100,000
    (6)
    
    
    12.09
    
    
    
    5/02/2017
 
 (1)
    
    These options vested on February 11, 2008.(2)
    
    These options vest in four equal annual installments with the first installment on February 16, 2006.(3)
    
    These options vest in four equal annual installments with the first installment vesting on February 9, 2007.(4)
    
    These options vest in four equal installments with the first installment vesting on March 1, 2008.(5)
    
    These options vest in four equal installments with the first installment vesting on June 19, 2007.(6)
    
    These options vest in four equal installments with the first installment vesting on May 2, 2008. 12




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Option Exercises and Stock Vested
  Potential Payments Upon Termination or Change-in-Control
  
    
    we will continue to pay to the executive his or her base salary for a period, which we
refer to as the payment period, that is equal in length to twelve months, plus two weeks for
each full year during which the executive was employed by us or our predecessors;
    
    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;
    
    on or before January 15 of the calendar year following the calendar year during which the
executives employment is terminated, we will make an additional cash payment to the
executive equal to the executives target bonus for the calendar year in which the change in
control occurs, as established in writing by our board of directors; 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
    
    $
    576,923
    
    
    $
    150,000
    
    
    $
    30,632
    
    
    $
    Benjamin L. Palleiko
    
    
    303,231
    
    
    
    87,600
    
    
    
    20,677
    
    
    
    Thomas R. Sciascia, M.D.
    
    
    369,231
    
    
    
    90,000
    
    
    
    24,506
    
    
    
    Anand R. Baichwal, Ph.D.
    
    
    424,615
    
    
    
    72,000
    
    
    
    34,948
    
    
    
    Amale Hawi, Ph.D.
    
    
    275,000
    
    
    
    82,500
    
    
    
    1,155
    
    
    
    
 
 (1)
    
    This amount would be determined by multiplying the number of option
shares that would accelerate, assuming a December 31, 2007 employment
termination by the excess of $5.85 over the exercise price of the
option. $5.85 is the closing price of our common stock on the NASDAQ
Global Market on December 31, 2007, the last day of trading in fiscal
year 2007. As of December 31, 2007, all exercisable stock options had
an exercise price above $5.85. 13




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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
   14




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Expense Reimbursement
  2007 Director Compensation
 Fees Earned orPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    TotalName (1)
    
    ($)(2)
    
    ($)(3)
    
    ($)(3)
    
    ($)Christophe Bianchi, M.D.
    
    $
    13,000
    
    
    $
    73,575
    
    
    $
    
    
    
    $
    86,575Peter F. Drake, Ph.D.
    
    
    33,987
    
    
    
    146,264
    
    
    
    
    
    
    
    180,251Paul E. Freiman
    
    
    55,504
    
    
    
    180,811
    
    
    
    
    
    
    
    236,315Robert J. Hennessey
    
    
    32,507
    
    
    
    180,811
    
    
    
    
    
    
    
    213,318David P. Meeker, M.D.
    
    
    35,000
    
    
    
    171,458
    
    
    
    
    
    
    
    206,458W. James OShea
    
    
    11,502
    
    
    
    75,664
    
    
    
    
    
    
    
    87,166John N. Staniforth, Ph.D.(4)
    
    
    27,514
    
    
    
    180,811
    
    
    
    
    
    
    
    208,325Anne M. VanLent
    
    
    45,500
    
    
    
    82,051
    
    
    
    105,720
    
    
    
    233,271
 
 (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 in Item 11. Executive Compensation 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 2,306 shares of common stock in lieu of $27,987 of cash fees;
    
    Mr. Freiman received 972 shares of common stock in lieu of $10,504 of cash fees;
    
    Mr. Hennessey received 2,797 shares of common stock in lieu of $32,507 of cash fees;
    
    Mr. OShea received 970 shares of common stock in lieu of $11,502 of cash fees;
    
    Dr. Staniforth received 1,649 shares of common stock in lieu of $20,014 of cash fees.
 (3)
    
    Represents the amount of compensation cost that we recognized for financial statement reporting
purposes for fiscal year 2007 with respect to restricted stock and option awards granted in fiscal
year 2007 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 9 of
the financial statements in our Form 10-K 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 2007 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, 2007, the grant date fair values of option awards made to our non-employee
directors during 2007 as determined in accordance with SFAS No. 123R and the aggregate number of shares
subject to options held by each of our non-employee directors as of December 31, 2007.
 AggregateNumber of
    
    Grant Date FairGrant Date Fair
    
    Unvested Stock
    
    Value of 2007
    
    Aggregate NumberValue of 2007 Stock
    
    Awards as of
    
    Option
    
    of Option AwardsName
    
    Awards
    
    12/31/07
    
    Awards
    
    as of 12/31/07Christophe Bianchi, M.D.
    
    $
    260,800
    
    
    
    20,000
    
    
    $
    
    
    
    
    Peter F. Drake, Ph.D.
    
    
    98,760
    
    
    
    16,000
    
    
    
    
    
    
    
    Paul E. Freiman
    
    
    277,080
    
    
    
    18,000
    
    
    
    
    
    
    
    70,123Robert J. Hennessey
    
    
    277,080
    
    
    
    18,000
    
    
    
    
    
    
    
    63,567David P. Meeker, M.D.
    
    
    329,200
    
    
    
    20,000
    
    
    
    
    
    
    
    W. James OShea,
    
    
    268,200
    
    
    
    20,000
    
    
    
    
    
    
    
    John N. Staniforth, Ph.D.
    
    
    277,080
    
    
    
    18,000
    
    
    
    
    
    
    
    91,095Anne M. VanLent
    
    
    178,320
    
    
    
    12,000
    
    
    
    105,720
    
    
    
    83,871
 
 (4)
    
    Payments made under the Royalty Termination Agreement are not included in the table. Details of the transaction
are disclosed under Item 13. Certain Relationships and Related Transactions and Director Independence. 15




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
  Compensation Committee Report
  
 Chair
 
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    16




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##### Table of Contents



Amount and Nature of BeneficialOwnershipName and Address of Beneficial Owner
    
    Number of Shares
    
    Percentage5% ShareholdersPerceptive Advisors and Related Parties
499 Park Avenue, 25th Floor
New York, NY 10022
    
    
    6,138,408
    (1)
    
    
    18.9
    %Galleon Management, L.P.
590 Madison Avenue, 34th Floor
New York, NY 10022
    
    
    3,117,866
    (2)
    
    
    9.9
    %Franklin Resources, Inc.
One Franklin Parkway
San Mateo, CA 94403-1906
    
    
    2,727,485
    (3)
    
    
    8.6
    %D.E. Shaw & Co., L.P.
120 W. 45th Street, Tower 45,
39th Floor
New York, NY 10036
    
    
    2,264,188
    (4)
    
    
    7.2
    %Quogue Capital LLC
1285 Avenue of the Americas,
35th Floor
New York, NY 10019
    
    
    2,275,000
    (5)
    
    
    7.1
    %Directors:Christophe Bianchi, M.D.
    
    
    26,000
    
    
    
    *Peter F. Drake, Ph.D.
    
    
    45,058
    
    
    
    *Paul E. Freiman
    
    
    101,628
    (6)
    
    
    *Jennifer L. Good
    
    
    426,867
    (7)
    
    
    1.3
    %Robert J. Hennessey
    
    
    124,369
    (8)
    
    
    *David P. Meeker, M.D.
    
    
    26,000
    
    
    
    *W. James OShea
    
    
    28,376
    
    
    
    *John N. Staniforth, Ph.D.
    
    
    162,494
    (9)
    
    
    *Anne M. VanLent
    
    
    135,183
    (10)
    
    
    *Other Named Executive Officers:Anand R. Baichwal, Ph.D.
    
    
    235,430
    (11)
    
    
    *Amale Hawi, Ph.D.
    
    
    25,000
    (12)
    
    
    *Benjamin L. Palleiko
    
    
    47,500
    (13)
    
    
    *Thomas R. Sciascia, M.D.
    
    
    223,404
    (14)
    
    
    *All executive officers and directors as a group (15 persons)
    
    
    1,669,122
    
    
    
    5.1
    %
 
 *
    
    Represents beneficial ownership of less than 1%.(1)
    
    The foregoing information is based on a Form 4 filed with the
SEC on March 20, 2008 by Joseph Edelman, Scott Bradley, Perceptive
Life Sciences Master Fund Ltd. (Perceptive Master Fund), and
Perceptive Advisors LLC (Perceptive Advisors). Perceptive Master
Fund reports holding 5,032,546 shares. Mr. Edelman is the managing member of Perceptive
Advisors, which in turn is the investment manager of Perceptive
Master Fund. Mr. Edelman and Mr. Bradley report sharing voting and dispositive
power over 54,500 of such shares. Mr. Edelman reports having sole
voting and dispositive power over the remainder of such shares. Each
of Mr. Edelman, Mr. Bradley and Perceptive Advisors and Related
Parties disclaims beneficial ownership of such shares, except to the
extent of his or its indirect pecuniary interest therein.
Additionally, Mr. Edleman reports having sole voting and
dispositive power over 180,862 shares held by First New York Trading,
LLC. The number of shares also include warrants exercisable for
925,000 shares.(2)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the Securities and Exchange Commission on February 14, 2008.
Galleon Management, L.P. (Galleon Management) and Raj Rajaratnam
report having shared voting power and shared dispositive power for
3,117,866 shares. Galleon Captains Offshore, LTD (Galleon
Captain) reports having shared voting power and shared dispositive
power for 1,300,848 shares. Galleon Healthcare Offshore, LTD
(Galleon Healthcare) reports having shared voting power and share
dispositive power for 1,386,146 shares. Galleon Management has
beneficial ownership of 17




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##### Table of Contents



the reported share through the investment
discretion it exercises over its clients accounts. Although such
accounts do not have beneficial ownership of such share for purposes
of Section 13 and Section 16 of the Securities Exchange Act of 1934,
two accounts managed by Galleon Management, Galleon Healthcare and
Galleon Captain, own of record more than 5% of the Companys
outstanding shares.(3)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the Securities and Exchange Commission on February 7, 2008.
Franklin Advisers, Inc. (FAI) reports having sole voting power and
sole dispositive power for 1,282,936 shares, and Franklin Templeton
Portfolio Advisors, Inc. (FTPAI) reports having sole voting power
and sole dispositive power for 1,444,549 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 owns 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.(4)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the Securities and Exchange Commission on January 11, 2008. D.E.
Shaw & Co., L.P., D.E. Shaw Valence Portfolios, L.L.C. (Valence
Portfolios) and David E. Shaw report having shared voting power and
shared dispositive power for 2,264,188 shares. Mr. Shaw disclaims
beneficial ownership of such 2,264,188 shares. Such shares are
composed of (i) 2,237,288 shares in the name of Valence Portfolios,
and (ii) 26,900 shares that Valence Portfolios has the right to
acquire through the exercise of listed call options.(5)
    
    The foregoing information is based solely on a Schedule 13G/A filed
with the securities and Exchange Commission on March 11, 2008.
Quogue Capital LLC (Quogue) reports having sole voting power and
sole dispositive power over 2,275,000 shares and warrants exercisable
for 550,000 shares. Wayne P. Rothbaum is the managing member of
Quogue Capital LLC. Mr. Rothbaum disclaims beneficial ownership of
such shares.(6)
    
    Includes 70,123 shares subject to outstanding stock options held by
Mr. Freiman that are exercisable within 60 days following
March 11,
2008.(7)
    
    Includes 421,000 shares subject to outstanding stock options held by
Ms. Good that are exercisable within 60 days following
March 11,
2008.(8)
    
    Includes 63,567 shares subject to outstanding stock options held by
Mr. Hennessey that are exercisable within 60 days following
March 11,
2008.(9)
    
    Includes 91,095 shares subject to outstanding stock options held by
Dr. Staniforth that are exercisable within 60 days
following March 11, 2008.(10)
    
    Includes 83,871 shares subject to outstanding stock options held by
Ms. VanLent that are exercisable within 60 days following
March 11,
2008.(11)
    
    Includes 212,500 shares subject to outstanding stock options held by
Dr. Baichwal that are exercisable within 60 days following
March 11,
2008.(12)
    
    Includes 25,000 shares subject to outstanding stock options held by
Dr. Hawi that are exercisable within 60 days following
March 11,
2008.(13)
    
    Includes 45,000 shares subject to outstanding stock options held by
Mr. Palleiko that are exercisable within 60 days following
March 11,
2008.(14)
    
    Includes 218,500 shares subject to outstanding stock options held by
Dr. Sciascia that are exercisable within 60 days following
March 11,
2008. 18




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##### Table of Contents



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
    
    
    2,410,960
    
    
    $
    13.97
    
    
    
    496,477Equity compensation
plans that have not
been approved by
our shareholders
    
    
    
    
    
    $
    
    
    
    
    Total
    
    
    2,410,960
    
    
    $
    13.97
    
    
    
    496,477
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 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;
 19




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##### Table of Contents




    
    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.
   
    
    interests arising solely from the related persons position as an executive officer of
another entity (whether or not the person is also a director of that entity), that is a
participant in the transaction, where (a) the related person and all other related persons
own in the aggregate less than a 10% equity interest in the entity and (b) the related
person and his or her immediate family members are not involved in the negotiation of the
terms of the transaction and do not receive any special benefits as a result of the
transaction; and
    
    a transaction that is specifically contemplated by provisions of our charter or bylaws.
 Related Persons Transactions
   Board Independence
  20




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Fee Category
    
    2007
    
    
    2006Audit Fees(1)
    
    $
    465,000
    
    
    $
    469,800Audit-Related Fees(2)
    
    
    42,000
    
    
    
    40,000Tax Fees(3)
    
    
    153,500
    
    
    
    42,400All Other Fees(4)
    
    
    2,525
    
    
    
    120,900Total Fees
    
    $
    663,025
    
    
    $
    673,100
 
 (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.(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 2007 and 2006, these fees principally 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 2007 and 2006 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 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 2007, all other fees related to a subscription to the Ernst & Young
Global Accounting and Auditing Information Tool. In 2006,
substantially all of these fees related to the performance of audit
procedures in connection with our collaborative arrangement with Endo.    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




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##### 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
    
    Number2.1
    
    Purchase Agreement by and between the
Registrant and Josef Rettenmaier Holding
GmBh & Co. KG, dated November 1, 2002.
    
    
    
    Schedule 14A
    
    1/31/2003
    
    000-234672.2
    
    Amendment to Purchase Agreement made as
of February 26, 2003, by and among the
Registrant., Josef Rettenmaier Holding
GmbH & Co. KG, and the other parties
named therein.
    
    
    
    
    8-K
    
    
    2/28/2003
    
    000-234673.1
    
    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
    
    333-383894.2
    
    Form of Rights Agreement dated as of July
27, 1998 between the Registrant and the
Rights Agent.
    
    
    
    
    10/A
    
    
    7/17/1998
    
    000-2346710.1
    
    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
    
    333-3838910.7
    
    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
    
    Form of Tax Allocation Agreement entered
into between the Registrant and Penford
Corporation.
    
    
    
    
    10
    
    
    6/22/1998
    
    000-2346710.10
    
    Recognition and Incentive Agreement dated
as of May 14, 1990 between the Registrant
and Anand Baichwal, as amended.
    
    
    
    
    S-1/A
    
    
    11/10/1997
    
    333-38389




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##### Table of Contents



Filed withExhibit
    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber
    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number10.11
    
    Termination Agreement dated as of
February 1, 2007 by and between Anand
Baichwal and the Registrant
    
    
    
    
    8-K
    
    
    2/5/2007
    
    000-2346710.12
    
    Royalty Agreement dated September 25,
1992 between the Registrant and John N.
Staniforth.
    
    
    
    
    10-Q
    
    
    5/15/2002
    
    000-2346710.13
    
    Termination Agreement dated as of
February 1, 2007 by and between John
Staniforth and the Registrant
    
    
    
    
    8-K
    
    
    2/5/2007
    
    000-2346710.14
    
    Confidentiality, Consulting and
Noncompetition Agreement dated September
25, 1992 between the Registrant and John
N. Staniforth.
    
    
    
    
    10-Q
    
    
    5/15/2002
    
    000-2346710.15
    
    Lease Agreement dated as of February 3,
2003 by and between Union Carbide
Corporation and the Registrant
    
    
    
    
    10-Q
    
    
    5/15/2003
    
    000-2346710.16
    
    Lease Amendment and Attornment Agreement,
dated March 15, 2004, by and between
Union Carbide Corporation and the
Registrant
    
    
    
    
    10-Q
    
    
    8/3/2004
    
    000-2346710.17
    
    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
    
    000-2346710.18
    
    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
    
    000-2346710.19
    
    Form of Option Agreement for 1997
Incentive Plan
    
    
    
    
    10-K
    
    
    3/16/05
    
    000-2346710.20
    
    Nonstatutory Stock Option Agreement dated
June 21, 2004 by and between the
Registrant and Alan F. Joslyn, Ph.D.
    
    
    
    
    S-8
    
    
    7/26/2005
    
    333-12689710.21
    
    Severance and Settlement Agreement and
Release dated February 14, 2005 by and
between the Registrant and Tod R.
Hamachek
    
    
    
    
    10-Q
    
    
    5/9/2005
    
    000-2346710.22
    
    2005 Stock Incentive Plan
    
    
    
    
    8-K
    
    
    6/7/2005
    
    000-2346710.23
    
    Amendment No. 1 to 2005 Stock Incentive
Plan
    
    
    
    
    10-Q
    
    
    11/9/06
    
    000-2346710.24
    
    Form of Incentive Stock Option Agreement
for grants under 2005 Stock Incentive
Plan
    
    
    
    
    8-K
    
    
    6/7/2005
    
    000-2346710.25
    
    Form of Employee Nonstatutory Stock
Option Agreement for grants under 2005
Stock Incentive Plan
    
    
    
    
    8-K
    
    
    6/7/2005
    
    000-2346710.26
    
    Form of Nonstatutory Stock Option
Agreement (Consultants and Directors) for
grants under 2005 Stock Incentive Plan
    
    
    
    
    8-K
    
    
    6/7/2005
    
    000-2346710.27
    
    Form of Director Restricted Stock
Agreement for grants under 2005 Stock
Incentive Plan
    
    
    
    
    8-K
    
    
    6/7/2005
    
    000-2346710.28
    
    Form of Executive Retention Agreement
entered into by the Registrant and each
of the Executive Officers
    
    
    
    
    10-K
    
    
    3/16/2006
    
    000-2346710.29
    
    Summary of Executive Officer Bonus Program
    
    
    
    
    10-K
    
    
    3/16/2007
    
    000-2346710.30
    
    Summary of the Director Compensation
Program
    
    
    
    
    10K
    
    
    3/16/2007
    
    000-23467




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##### Table of Contents



Filed withExhibit
    
    
    
    this Form
    
    Form or
    
    Filing Date
    
    SEC FileNumber
    
    Description
    
    10-K/A
    
    Schedule
    
    with SEC
    
    Number10.31
    
    Offer Letter between the Registrant and
Benjamin L. Palleiko, effective June 19,
2006
    
    
    
    
    10-Q
    
    
    8/9/2006
    
    000-2346710.32
    
    Severance and Settlement Agreement and
Release dated February 9, 2007 by and
between the Registrant and Alan Joslyn
    
    
    
    
    10-Q
    
    
    5/10/2007
    
    000-2346710.33
    
    Manufacture and Supply Agreement dated
November 6, 2006 between the Registrant
and Draxis Specialty Pharmaceuticals Inc.
    
    
    
    
    10-K
    
    
    3/16/2007
    
    000-2346710.34
    
    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
    
    000-2346710.35
    
    Collaboration and License Agreement dated
as of July 16, 2007 by and between Edison
Pharmaceuticals, Inc. and the Registrant
    
    
    
    
    10-Q
    
    
    11/8/2007
    
    000-2346710.36
    
    Amendment to Rights Agreement dated as of
March 5, 2008 between the Registrant and
Mellon Investor Services LLC
    
    
    
    
    8-K
    
    
    3/6/2008
    
    000-2346710.37
    
    Securities Purchase Agreement dated March
5, 2008, among the Registrant and the
purchasers party thereto
    
    
    
    
    8-K
    
    
    3/6/2008
    
    000-2346710.38
    
    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
    
    000-2346710.39
    
    Amendment No. 2 to Rights
Agreement dated as of March 20, 2008 between the Registrant and
Mellon Investor Services LLC
    
    
    
    
    8-K
    
    
    3/20/2008
    
    000-2346723
    
    Consent of Ernst & Young LLP
    
    
    
    
    10-K
    
    
    3/17/2008
    
    000-2346731.1
    
    Certification of Principal Executive
Officer pursuant to Exchange Act Rules
13a-14 or 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
    
    
    
    
    10-K
    
    
    3/17/2008
    
    000-2346731.2
    
    Certification of 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
    
    
    
    
    10-K
    
    
    3/17/2008
    
    000-2346731.3
    
    Certification of Principal Executive
Officer pursuant to Exchange Act Rules
13a-14 or 15d-14, as adopted pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
    
    X31.4
    
    Certification of 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
    
    X32.1
    
    Certification of Principal Executive
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
    
    
    3/17/2008
    
    000-2346732.2
    
    Certification of 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
    
    
    3/17/2008
    
    000-23467




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##### Table of Contents




    
    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.