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                                                                    Exhibit 10.4


                 SEVERANCE AND SETTLEMENT AGREEMENT AND RELEASE

This AGREEMENT is entered into by and between Penwest Pharmaceuticals Co. (the
"Company") and ALAN JOSLYN (the "Employee").

WHEREAS, the parties wish to resolve amicably the Employee's separation from the
Company and establish the terms of the Employee's severance arrangement;

NOW, THEREFORE, in consideration of the promises and conditions set forth
herein, the sufficiency of which is hereby acknowledged, the Company and the
Employee agree as follows:

         1.       Termination Date. The Employee's effective date of termination
  from the Company is FEBRUARY 9, 2007.

         2.       Monetary Consideration. In return for the execution of the
  instant Severance and Settlement Agreement and Release, the Company agrees to
  continue to pay the Employee's salary, for the period that the Employee
  remains unemployed, at the rate of $10,231 per pay period for up to six (6)
  months from the termination date (the "Severance Period") less all applicable
  state and federal taxes as severance pay. In no event shall the payment of
  severance or Severance period continue beyond the Employee's start date of new
  employment or exceed six months, which ever comes first. The severance pay
  will be paid to the Employee in accordance with the Company's regular payroll
  practices, with the first payment to be paid no earlier than the eighth (8th)
  day after execution of the Agreement. If the Employee elects to continue group
  medical insurance pursuant to the federal "COBRA" law, 29 U.S.C. Section 1161
  et seq., then the Company agrees that it shall continue to pay its share of
  the Employee's health and dental insurance premiums for the Severance Period
  or the commencement of new employment, which ever comes first. Thereafter, the
  Employee may elect to continue such coverage under COBRA for the remainder of
  the COBRA period, with the Employee paying 100% of the cost of such coverage.
  All other employee benefits, including 401K and Employee Stock Purchase Plan
  (ESPP), will terminate on the effective termination date of FEBRUARY 9,


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  2007. The Employee shall receive a reimbursement for purchases made through
  the ESPP at the next payroll period and in accordance with the Company's
  regular payroll practices.

         3.       Bonus Consideration: At the next payroll period upon
  effectiveness of this Agreement, the Employee will be paid $25,000 for the
  2006 bonus period.

         4.       Equity Consideration. Upon effectiveness of this Agreement,
  the vesting schedule of 8,750 shares to purchase the Company's common stock
  ("Options") which were to vest February 16, 2007 held by the employee shall be
  accelerated in full, subject to the terms of the Company's stock incentive
  plans under which the options were granted and the option agreements
  evidencing the options.

         5.       Release. In consideration of the payment of the severance
  benefits, which the Employee acknowledges he would not otherwise be entitled
  to receive, the Employee hereby fully, forever, irrevocably and
  unconditionally releases, remises and discharges the Company, its officers,
  directors, shareholders, corporate affiliates, subsidiaries, parent companies,
  agents and employees (each in their individual and corporate capacities), all
  employee benefit plans and plan fiduciaries (hereinafter, the "Released
  Parties") from any and all claims, charges, complaints, demands, actions,
  causes of action, suits, rights, debts, sums of money, costs, accounts,
  reckonings, covenants, contracts, agreements, promises, doings, omissions,
  damages, executions, obligations, liabilities, and expenses (including
  attorneys' fees and costs), of every kind and nature which the Employee ever
  had or now has against the Released Parties, including but not limited to, any
  and all claims arising out of the Employee's employment with and/or separation
  from the Company, including, but not limited to, all employment discrimination
  claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section
  2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. Section 621
  et seq., the Americans With


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  Disabilities Act of 1990, 42 U.S.C., Section 12101 et seq., the Connecticut
  Human Rights and Opportunities Act, Conn. Gen. Stat. Section 46A-51 et seq.,
  and the Connecticut Equal Pay Law, Conn. Gen. Stat. Section 31-75 et seq.,
  Conn. Gen. Stat. Section 38a-543, all claims arising out of the Family and
  Medical Leave Act, 29 U.S.C. Section 2601 et seq., the Fair Credit Reporting
  Act, 15 U.S.C. Section 1681 et seq., the Employee Retirement Income Security
  Act of 1974 ("ERISA"), 29 U.S.C. Section 1001 et seq., the Connecticut Family
  and Medical Leave Law, Conn. Gen. Stat. Section 31-51kk et seq., the
  Connecticut Whistleblower Protection Law, Conn. Gen. Stat. Section 31-51m, all
  as amended; all common law claims including, but not limited to, actions in
  tort, defamation and breach of contract; all claims to any non-vested
  ownership interest in the Company, contractual or otherwise, including but not
  limited to claims to stock or stock options; and any claim or damage arising
  out of the Employee's employment with or separation from the Company
  (including a claim for retaliation) under any common law theory or any
  federal, state or local statute or ordinance not expressly referenced above;
  provided, however, that nothing in this Agreement prevents the Employee from
  filing, cooperating with, or participating in any proceeding before the EEOC
  or a state Fair Employment Practices Agency (except that the Employee
  acknowledges that he may not be able to recover any monetary benefits in
  connection with any such claim, charge or proceeding).

         6.       Post-Termination Confidentiality Obligation. The Employee
  acknowledges and reaffirms his obligation to keep confidential and not to
  disclose or use any and all non-public information concerning the Company
  which he acquired during the course of his employment with the Company,
  including but not limited to business and marketing plans and strategy,
  potential acquisitions, financial information, product information, technical
  information and personnel data. The Employee further acknowledges and confirms
  his continuing obligations to

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  the Company pursuant to the terms of the Proprietary Information Agreement he
  signed at the inception of his employment, which remains in full force and
  effect.

         7.       Return of Company Property. The Employee agrees to return all
  Company property and equipment in his possession or control, including, but
  not limited to, all Company files and documents. The Employee further agrees
  to leave intact all electronic Company documents including those which he
  developed or helped develop during his employment.

         8.       Cooperation. The Employee agrees to cooperate fully with the
  Company in the defense or prosecution of any claims or actions now in
  existence or which may be brought in the future against or on behalf of the
  Company. The Employee's full cooperation in connection with such claims or
  actions shall include, but not be limited to, his being available to meet with
  Company counsel to prepare for trial or discovery or an administrative hearing
  and to act as a witness when requested by the Company at reasonable times
  designated by the Company.

         9.       Nature of Agreement. The Employee understands and agrees that
  this Agreement is a severance and settlement agreement and does not constitute
  an admission of liability or wrongdoing on the part of the Company.

         10.      Amendment. This Agreement shall be binding upon the parties
  and may not be abandoned, supplemented, changed or modified in any manner,
  orally or otherwise, except by an instrument in writing of concurrent or
  subsequent date signed by a duly authorized representative of the parties
  hereto. This Agreement is binding upon and shall inure to the benefit of the
  parties and their respective agents, assigns, heirs, executors, successors and
  administrators.

         11.      Validity. Should any provision of this Agreement be declared
  or be determined by any court of competent jurisdiction to be illegal or
  invalid, the validity of the remaining


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  parts, terms, or provisions shall not be affected thereby and said illegal and
  invalid part, term or provision shall be deemed not to be a part of this
  Agreement.

         12.      Confidentiality. To the extent permitted by law, the Employee
  understands and agrees that the terms and contents of this Agreement, and the
  contents of the negotiations and discussions resulting in this Agreement,
  shall be maintained as confidential by the Employee, his agents and
  representatives, and none of the above shall be disclosed except to the extent
  required by federal or state law or as otherwise agreed to in writing by the
  authorized agent of each party.

         13.      Non-Disparagement. The Employee understands and agrees that as
  a condition for payment to him of the monetary consideration herein, he shall
  not make any false, disparaging or derogatory statements in public or private
  to any person or media outlet regarding the Company or any of its directors,
  officers, employees, agents, or representatives or the Company's business
  affairs and financial condition.

         14.      Entire Agreement. This Agreement contains and constitutes the
  entire understanding and agreement between the parties hereto with respect to
  the severance and settlement and cancels all previous oral and written
  negotiations, agreements, commitments, and writings in connection therewith.

         15.      Applicable Law and Consent to Jurisdiction. This Agreement
  shall be interpreted and construed in accordance with the laws of the State of
  Connecticut, without regard to conflict of laws provisions. The Employee
  hereby irrevocably submits to and acknowledges and recognizes the jurisdiction
  of the courts of the State of Connecticut, or if appropriate, a federal court
  located in Connecticut (which courts, for purposes of this Agreement, are the
  only


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  courts of competent jurisdiction) over any suit, action or other proceeding
  arising out of, under or in connection with this Agreement or its subject
  matter.

         16.      Acknowledgments. The Employee acknowledges that he has been
  given twenty-one (21) days to consider this Agreement and that the Company
  advised him to consult with any attorney of his own choosing prior to signing
  this Agreement. The Employee may revoke this Agreement for a period of seven
  (7) days after the execution of this Agreement, and the Agreement shall not be
  effective or enforceable until the expiration of this seven (7) day revocation
  period.

         17.      Voluntary Assent. The Employee affirms that no other promises
  or agreements of any kind have been made to or with him by any person or
  entity whatsoever to cause him to sign this Agreement, and that he fully
  understands the meaning and intent of this Agreement. The Employee states and
  represents that he has had an opportunity to fully discuss and review the
  terms of this Agreement with an attorney. The Employee further states and
  represents that he has carefully read this Agreement, understands the contents
  herein, freely and voluntarily assents to all of the terms and conditions
  hereof, and signs his name of his own free act.

IN WITNESS WHEREOF, all parties have set their hand and seal to this Agreement
as of the date written below.

ALAN JOSLYN

/s/ Alan Joslyn                         Date: 2/12/07
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PENWEST PHARMACEUTICALS CO.

By: /s/ Susanne N. Donohue              Date: 2/14/07
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