<PAGE>
                                                                    Exhibit 10.1

[Penwest LOGO]

777 108th Avenue N.E.
Suite 2390
Bellevue, WA
98004-5193
(206) 462-6000
Fax (206) 462-2819


                               ROYALTY AGREEMENT

     This Agreement will serve to confirm existing understandings and agreements
between PENWEST, LTD., a Delaware corporation, and its subsidiaries including
without limitation the Edward Mendell Co., Inc., a Washington corporation
("MENDELL"), (hereinafter collectively referred to as "PENWEST") and JOHN N.
STANIFORTH (hereinafter referred to as "CONSULTANT").

                                    Recitals

     PENWEST has previously agreed to pay royalties to CONSULTANT in recognition
of the patents developed by CONSULTANT for TIMERx, and by execution of this
Agreement to provide for the payment of royalties for the sale of other products
which utilize patents for which CONSULTANT is named as an investor.

                                   Agreement

     The parties agree as follows:

     1) DEFINITION.

     "Cause" shall mean (i) continued failure by CONSULTANT to perform his
duties (except as a direct result of the CONSULTANT's incapacity due to physical
or mental illness) for a period of at least six (6) months after receiving
written notification from PENWEST identifying the manner in which the CONSULTANT
has failed to perform his duties; (ii) engaging in conduct, which in the opinion
of a majority of the Board of Directors of PENWEST is materially injurious to
PENWEST; or (iii) conviction of the CONSULTANT of a misdemeanor involving moral
turpitude or any felony.

     "Net Sales" shall mean the aggregate revenue generated from the sales or
licenses of the Products sold by PENWEST, less all discounts, adjustments,
returns and allowances and all charges for freight, insurance, taxes, custom
duties, commissions and similar items.

     "Patents" shall mean the patents relating to TIMERx for which CONSULTANT is
named as an inventor and which are listed and identified on Exhibit 1 and any
other patents for which CONSULTANT is named as an inventor and which are
utilized in Products (as defined below).

     "Products" shall mean any products or goods sold or licensed by PENWEST
which utilize any of the Patents as listed in Exhibit 1.

     2) ROYALTIES. Within One Hundred Twenty (120) days after the end of each of
its fiscal years PENWEST shall pay to CONSULTANT as a royalty a sum equal to
one-half of one percent (.005) of the Net Sales of the Products covered by this
Agreement.

     3) EFFECTIVE DATE AND TERM. The effective date of this Agreement shall be
as of the date of this Agreement and shall continued for the life of the Patents
covered by this Agreement.


                                       1
<PAGE>


In the event CONSULTANT is terminated for "Cause" payment of royalties to
Consultant shall terminate as of the end of the PENWEST fiscal year in which
such termination process occurs.

     4) SEVERABILITY. If any provision of this Agreement is unenforceable or
illegal, the remainder of this Agreement shall remain in full force and effect.
If any one or more of the provisions contained in this Agreement shall be held
to be excessively broad as to duration, geographical scope, activity or
subject, such provision shall be construed by limiting and reducing it so as to
be enforceable to the extent compatible with the applicable law.

     5) GOVERNING LAW. This Agreement shall be deemed a contract made, executed,
delivered and performed in the State of Washington, U.S.A. and shall be governed
by the laws of the State of Washington. The Federal and State courts sitting in
King County, Washington, Washington shall have exclusive jurisdiction over all
controversies which may arise under or in relation to this Agreement, especially
with respect to the execution, interpretation, breach, enforcement, or
compliance thereof. The parties further agree and consent to service,
jurisdiction, and venue of such courts for any litigation arising from this
Agreement, and waive any other venue to which they might be entitled by virtue
of domicile, habitual residence or otherwise.

     6) AMENDMENT. This Agreement constitutes the entire Agreement of the
parties, and may be altered or amended or any provision hereof waived only by an
agreement in writing signed by the party against whom enforcement of any
alteration, amendment or waiver is sought. No waiver by either party of any
breach of this Agreement shall be considered as a waiver of any subsequent
breach.

     7) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns, but none of the benefits of the Agreement shall be assigned without the
written consent of the other party.

     8) AUTHORITY. The persons executing this Agreement represent and warrant
that they are authorized to execute this Agreement on behalf of the party for
whom they sign.

     9) TITLES AND HEADINGS. Titles and headings to sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.

     IN WITNESS WHEREOF, PENWEST and CONSULTANT have executed this Agreement on
the 25th day of September, 1992.


PENWEST, LTD.                                    John N. Staniforth

By /s/ Robert G. Widmaier                        By /s/ John N. Staniforth
   ----------------------------                     ----------------------------

Title Vice President and Chief                   Title
      Innovation Officer                               -------------------------
      -------------------------

                                       2
<PAGE>

                                 **Exhibit 1**

                              PATENTS CO-AUTHORED
                               BY J.N. STANIFORTH


 1)  Directly compressible sustained release excipient.

 2)  Sustained release excipient and tablet formulation.

 3)  Compressible sustained release solid dosage forms.

 4)  EPO Application No. 89309518.2; filed September 19, 1989.

 5)  Australian Patent Application No. 43057/89

 6)  Japanese Patent Application No. 1-510135

 7)  Irish Patent Application No. 2968/89

 8)  Canadian Patent Application No. 611,700

 9)  Verapamil Tablet Application, Serial No. 736,031 & EPO PCT Applications.

10)  2 U.S. Applications on Bi-modal release.