<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the quarterly period ended June 30, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ________________________ to ___________________


                          Commission File No. 000-23467


                           PENWEST PHARMACEUTICALS CO.
             (Exact name of registrant as specified in its charter)

              Washington                                91-1513032
       ------------------------             ------------------------------------
       (State of Incorporation)             (I.R.S. Employer Identification No.)

     2981 Route 22, Patterson, NY                      12563-9970
----------------------------------------               ----------
(Address of principal executive offices)               (Zip Code)


                                 (914) 878-3414
              -----------------------------------------------------
              (Registrant's telephone number, including area code.)


     Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                            Yes  X             No
                                ---               ---

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 7, 2000.

              Class                                           Outstanding
   -----------------------------                              -----------
   Common stock, par value $.001                              12,633,024


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                           PENWEST PHARMACEUTICALS CO.

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                    PAGE

<S>                                                                                                 <C>
Part I.           Financial Information

       Item 1.    Financial Statements (Unaudited)

                  Condensed Consolidated Balance Sheets.................................              3

                  Condensed Consolidated Statements of Operations.......................              4

                  Condensed Consolidated Statements of Cash Flows.......................              5

                  Notes to Condensed Consolidated Financial Statements..................              6

       Item 2.    Management's Discussion and Analysis of Financial Condition and
                  Results of Operations.................................................              8

       Item 3.    Quantitative and Qualitative Disclosures About Market Risk............             11

Part II.          Other Information

       Item 4.    Submission of Matters to a Vote of Security Holders...................             12

       Item 6.    Exhibits and Reports on Form 8-K......................................             12

Signature...............................................................................             13

Exhibit Index...........................................................................             14
</TABLE>


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<PAGE>   3


                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
                           PENWEST PHARMACEUTICALS CO.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 JUNE 30,         DECEMBER 31,
                                                                   2000               1999
                                                                 --------         ------------
                                                               (Unaudited)          (Note 2)
<S>                                                              <C>                <C>
ASSETS
Current assets:
  Cash and cash equivalents ...........................          $  6,252           $    739
  Trade accounts receivable, net of allowance for
     doubtful accounts of  $261 and $245 ..............             6,104              5,043
Inventories:
  Raw materials and other .............................             1,367              1,513
  Finished goods ......................................             6,746              6,136
                                                                 --------           --------
                                                                    8,113              7,649
  Prepaid expenses and other current assets ...........               474                629
  Deferred income taxes ...............................               297                297
                                                                 --------           --------
     Total current assets .............................            21,240             14,357
  Fixed assets, net ...................................            18,259             18,942
  Other assets ........................................             5,136              5,118
                                                                 --------           --------
     Total assets .....................................          $ 44,635           $ 38,417
                                                                 ========           ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ....................................          $  1,820           $  3,296
  Accrued expenses ....................................             3,202              2,707
  Taxes payable .......................................               313                344
  Other ...............................................               187                 --
                                                                 --------           --------
       Total current liabilities ......................             5,522              6,347

Loans payable refinanced in March 2000 ................                --              6,700
Deferred income taxes .................................               505                520
Other long-term liabilities ...........................             2,432              2,341
                                                                 --------           --------
       Total liabilities ..............................             8,459             15,908
Shareholders' equity:
  Preferred stock, par value $.001, authorized
     1,000,000 shares, none outstanding ...............                --                 --
  Common stock, par value $.001, authorized
     39,000,000 shares, issued and outstanding
     12,626,774  shares in 2000 and 11,148,718
      shares in 1999 ..................................                13                 11
  Additional paid in capital ..........................            77,044             59,718
  Accumulated deficit .................................           (39,605)           (36,159)
  Accumulated other comprehensive loss ................            (1,276)            (1,061)
                                                                 --------           --------
       Total shareholders' equity .....................            36,176             22,509
                                                                 --------           --------
       Total liabilities and shareholders' equity......          $ 44,635           $ 38,417
                                                                 ========           ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


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<PAGE>   4


                           PENWEST PHARMACEUTICALS CO.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                               THREE MONTHS
                                                                              ENDED JUNE 30,
                                                                              --------------
                                                                          2000               1999
                                                                          ----               ----
                                                                                (UNAUDITED)
<S>                                                                     <C>                <C>
                         Revenues
                           Product sales                                $  7,719           $  8,274
                           Royalties and licensing fees                    1,102                 70
                                                                        --------           --------
                             Total revenues                                8,821              8,344
                         Cost of product sales                             5,249              5,853
                                                                        --------           --------
                             Gross profit                                  3,572              2,491
                         Operating expenses
                           Selling, general and administrative             2,921              2,955
                           Research and product development                2,811              1,762
                                                                        --------           --------
                             Total operating expenses                      5,732              4,717
                                                                        --------           --------
                         Loss from operations                             (2,160)            (2,226)
                         Investment income                                    68                 --
                         Interest expense                                     15                 70
                                                                        --------           --------
                         Loss before income taxes                         (2,107)            (2,296)
                         Income tax expense (benefit)                         48                (36)
                                                                        --------           --------
                         Net loss                                       $ (2,155)          $ (2,260)
                                                                        ========           ========

                         Basic and diluted net loss per share           $  (0.17)          $  (0.20)
                                                                        ========           ========

                         Weighted average shares of common                12,475             11,104
                             stock outstanding                          ========           ========
</TABLE>



<TABLE>
<CAPTION>
                                                                                SIX MONTHS
                                                                              ENDED JUNE 30,
                                                                              --------------
                                                                          2000               1999
                                                                          ----               ----
                                                                                (UNAUDITED)
<S>                                                                     <C>                <C>
                         Revenues
                           Product sales                                $ 18,156           $ 18,011
                           Royalties and licensing fees                    2,013                150
                                                                        --------           --------
                             Total revenues                               20,169             18,161
                         Cost of product sales                            12,022             12,797
                                                                        --------           --------
                             Gross profit                                  8,147              5,364
                         Operating expenses
                           Selling, general and administrative             5,946              5,551
                           Research and product development                5,431              3,499
                                                                        --------           --------
                             Total operating expenses                     11,377              9,050
                                                                        --------           --------
                         Loss from operations                             (3,230)            (3,686)
                         Investment income                                    68                 --
                         Interest expense                                    141                134
                                                                        --------           --------
                         Loss before income taxes                         (3,303)            (3,820)
                         Income tax expense (benefit)                        143                (19)
                                                                        --------           --------
                         Net loss                                       $ (3,446)          $ (3,801)
                                                                        ========           ========

                         Basic and diluted net loss per share           $  (0.29)          $  (0.34)
                                                                        ========           ========

                         Weighted average shares of common                12,015             11,079
                             stock outstanding                          ========           ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


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                           PENWEST PHARMACEUTICALS CO.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                SIX MONTHS
                                                                                              ENDED JUNE 30,
                                                                                              --------------
                                                                                         2000               1999
                                                                                         ----               ----
                                                                                               (UNAUDITED)

<S>                                                                                    <C>                <C>
                       Net cash used in operating activities ................          $ (4,195)          $ (2,124)

                       Investing activities:
                         Acquisitions of fixed assets, net ..................              (785)              (246)
                         Other ..............................................              (103)              (145)
                                                                                       --------           --------
                       Net cash used in investing activities ................              (888)              (391)

                       Financing activities:
                         Borrowings from credit facility ....................             2,800              4,800
                         Repayments of credit facility ......................            (9,500)            (3,600)
                         Issuance of common stock, net ......................            17,327                407
                                                                                       --------           --------
                       Net cash provided by financing activities ............            10,627              1,607

                       Effect of exchange rate changes on cash and cash
                        equivalents .........................................               (31)              (101)
                                                                                       --------           --------
                       Net increase (decrease) in cash and cash equivalents .             5,513             (1,009)
                       Cash and cash equivalents at beginning of period .....               739              1,476
                                                                                       --------           --------
                       Cash and cash equivalents at end of period ...........          $  6,252           $    467
                                                                                       ========           ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


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<PAGE>   6


                           PENWEST PHARMACEUTICALS CO.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   BUSINESS

          Penwest Pharmaceuticals Co. (the "Company" or "Penwest") is engaged in
     the research, development, and commercialization of novel oral drug
     delivery products and technologies. Based on its extensive expertise in
     developing and manufacturing tableting ingredients for the pharmaceutical
     industry, the Company has developed TIMERx(R) ("TIMERx"), a proprietary
     controlled release drug delivery technology and PROSOLV(TM) ("PROSOLV"),
     another drug delivery technology which improves the performance
     characteristics of tablets. The Company's product portfolio ranges from
     excipients that are sold in bulk, to more technically advanced and patented
     excipient technologies that are licensed to customers. The Company has
     manufacturing facilities in Iowa and Finland and has customers primarily
     throughout North America and Europe.

          The Company is subject to the risks and uncertainties associated with
     a drug delivery company actively engaged in research and development. These
     risks and uncertainties include, but are not limited to, a history of net
     losses, technological changes, dependence on collaborators and key
     personnel, the successful completion of development efforts and of
     obtaining regulatory approval, the successful commercialization of TIMERx
     controlled release products, compliance with government regulations, patent
     infringement litigation and competition from current and potential
     competitors, some with greater resources than the Company.

2.   BASIS OF PRESENTATION

          The accompanying unaudited condensed consolidated financial statements
     have been prepared in accordance with accounting principles generally
     accepted in the United States for interim financial information and with
     the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
     Accordingly, they do not include all of the information and footnotes
     required by generally accepted accounting principles for complete financial
     statements. In the opinion of management, all adjustments considered
     necessary for a fair presentation for the interim periods presented have
     been included. All such adjustments are of a normal recurring nature.
     Operating results for the six month period ended June 30, 2000 are not
     necessarily indicative of the results that may be expected for the year
     ending December 31, 2000. For further information, refer to the
     consolidated financial statements and footnotes thereto included in the
     Company's Annual Report on Form 10-K for the year ended December 31, 1999.

          The balance sheet at December 31, 1999 has been derived from the
     audited financial statements at that date but does not include all of the
     information and footnotes required by generally accepted accounting
     principles for complete financial statements.

          Certain prior year amounts have been reclassified to conform with the
     current year's presentation. These reclassifications had no effect on
     previously reported results of operations.

3.   RECENT ACCOUNTING DEVELOPMENTS

          In December 1999, the Securities and Exchange Commission ("SEC")
     issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
     Statements" ("SAB 101"). SAB 101 requires companies to recognize the
     receipt of certain up-front non-refundable fees over the life of the
     related collaboration agreement. The Company understands that the SEC
     intends to provide additional guidelines during the third quarter of 2000
     with respect to interpretations of SAB 101 which may also affect the
     accounting for certain milestone fees included in multi-element agreements.
     The Company intends to make a change in its accounting policy for up-front
     non-refundable fees, as required, in the fourth quarter of 2000, however,
     it is currently unknown whether the additional guidelines from the SEC will
     affect the Company's current accounting policies relating to milestone fees
     received in connection with its multi-element collaboration agreements. Any
     changes made for the adoption of SAB 101 will


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<PAGE>   7


     result in a non-cash charge to operations for the cumulative effect of the
     change as of January 1, 2000. The effect of the change for up-front
     non-refundable fees previously recognized is not expected to be material to
     the results of operations for the year.

4.  INCOME TAXES

          The effective tax rates for the quarters ended June 30, 2000 and 1999,
     was an expense of 2% and a benefit of 2%, respectively. The effective tax
     rates for the six months ended June 30, 2000 and 1999, was an expense of 4%
     and a benefit of 0.5%, respectively. The effective tax rates are higher
     than the federal statutory rate of a 34% benefit, due primarily to the
     valuation allowance recorded to offset deferred tax assets relating to the
     Company's net operating losses, and state and foreign income taxes.


5.   COMPREHENSIVE LOSS

          The components of comprehensive loss for the three-month and six-month
     periods ended June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED JUNE 30,           SIX MONTHS ENDED JUNE 30,
                                                        2000              1999              2000              1999
                                                        ----              ----              ----              ----
                                                            (IN THOUSANDS)                      (IN THOUSANDS)

<S>                                                   <C>               <C>               <C>               <C>
    Net loss                                          $(2,155)          $(2,260)          $(3,446)          $(3,801)
    Foreign currency translation adjustments              (28)             (157)             (215)             (440)
                                                      -------           -------           -------           -------

    Comprehensive loss                                $(2,183)          $(2,417)          $(3,661)          $(4,241)
                                                      =======           =======           =======           =======
</TABLE>

          Accumulated other comprehensive loss equals the cumulative translation
     adjustment which is the only component of other comprehensive loss included
     in the Company's financial statements.

6.   ISSUANCE OF COMMON STOCK

          On March 6, 2000, the Company completed a private placement of its
     common stock to selected institutional and other accredited investors,
     resulting in the sale of 1,399,232 shares for approximately $18.2 million.
     The Company received approximately $17 million after expenses, of which
     $7.7 million of these proceeds was used to repay the existing outstanding
     balance under the Company's unsecured revolving credit facility as required
     by its terms. The credit facility is no longer available to the Company.

7.   COLLABORATION AGREEMENT

          On March 2, 2000, Mylan Pharmaceuticals Inc. ("Mylan") announced that
     it had signed a supply and distribution agreement with Pfizer, Inc.
     ("Pfizer") to market a generic version of all three strengths (30 mg, 60
     mg, 90 mg) of Pfizer's Procardia XL. As a result of the agreement, Pfizer
     agreed to dismiss all pending litigation against Mylan. In connection with
     that agreement, Mylan agreed to pay Penwest a royalty on all future net
     sales of Pfizer's 30 mg generic version of Procardia XL, which Mylan
     launched at the end of March 2000. The royalty percentage is comparable to
     those called for in Penwest's original agreement with Mylan for Nifedipine
     XL, a generic equivalent to Procardia XL. Mylan has retained the marketing
     rights to the 30 mg strength of Nifedipine XL, and agreed to purchase from
     the Company the formulated bulk TIMERx manufactured for Nifedipine XL.


8.   CONTINGENCIES

          In 1994, the Boots Company PLC ("Boots") filed an opposition to a
     patent granted by the European Patent Office (the "EPO") to the Company
     relating to its TIMERx technology. In June 1996, the EPO dismissed Boots'
     opposition, leaving intact all claims included in the patent. Boots has
     appealed this decision to the EPO Board of Appeals. There can be no
     assurance that the Company will prevail in this matter. An unfavorable
     outcome could materially adversely affect the Company's business, financial
     condition, cash flows and results of operations.


                                       7
<PAGE>   8


          Substantial patent litigation exists in the pharmaceutical industry.
     Patent litigation generally involves complex legal and factual questions,
     and the outcome frequently is difficult to predict. An unfavorable outcome
     in any patent litigation affecting the Company could cause the Company to
     pay substantial damages, alter its products or processes, obtain licenses
     and/or cease certain activities. Even if the outcome is favorable to the
     Company, the Company could incur substantial litigation costs. Although the
     legal costs of defending litigation relating to a patent infringement claim
     (unless such claim relates to TIMERx) are generally the contractual
     responsibility of the Company's collaborators, the Company could
     nonetheless incur significant unreimbursed costs in participating and
     assisting in the litigation.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

OVERVIEW

     Penwest Pharmaceuticals Co. is engaged in the research, development and
commercialization of novel oral drug delivery technologies. The Company has
extensive experience in developing and manufacturing tableting ingredients for
the pharmaceutical industry. The Company's product portfolio ranges from
excipients that are sold in bulk to more technically advanced and patented
excipient technologies that are licensed to customers. On August 31, 1998 (the
"Distribution Date"), Penwest became an independent, publicly owned company when
Penford Corporation ("Penford") the Company's former parent, distributed (the
"Distribution") to the shareholders of record of Penford common stock on August
10, 1998 all of the shares of the Company's common stock. Pursuant to the
Distribution, each Penford shareholder of record received three shares of the
Company's common stock for every two shares of Penford common stock held by
them.

     The Company has incurred net losses since 1994. As of June 30, 2000, the
Company's accumulated deficit was approximately $39.6 million. The Company
expects net losses to continue at least into early 2001. A substantial portion
of the Company's revenues to date have been generated from the sales of the
Company's pharmaceutical excipients. The Company's future profitability will
depend on several factors, including the successful commercialization of TIMERx
controlled release products, Mylan's sales of Pfizer's 30 mg generic version of
Procardia XL, an increase in sales of the Company's other pharmaceutical
excipients products, as well as the level of investment in research and
development activities. There can be no assurance that the Company will achieve
profitability or that it will be able to sustain any profitability on a
quarterly basis, if at all.

     On March 2, 2000, Mylan announced that it had signed a supply and
distribution agreement with Pfizer to market a generic version of all three
strengths (30 mg, 60 mg, 90 mg) of Pfizer's Procardia XL. As a result of the
agreement, Pfizer agreed to dismiss all pending litigation against Mylan. In
connection with that agreement, Mylan agreed to pay Penwest a royalty on all
future net sales of Pfizer's 30 mg generic version of Procardia XL, which Mylan
launched at the end of March 2000. The royalty percentage is comparable to those
called for in Penwest's original agreement with Mylan for Nifedipine XL, the
TIMERx-based generic equivalent to Procardia XL. Mylan has retained the
marketing rights to the 30 mg strength of Nifedipine XL, and has also agreed to
purchase from the Company, formulated bulk TIMERx manufactured for Nifedipine
XL, the remainder of which will be shipped in the third quarter of 2000.

     The Company's collaborative agreements include licensing arrangements in
which the Company is entitled to receive milestone payments, royalties on the
sale of the products covered by such collaborative agreements and payments for
the purchase of formulated TIMERx material, as well as licensing arrangements
which include revenue and cost sharing components in which the Company shares in
the costs and profitability in predetermined percentages, but does not generally
receive milestone payments. There can be no assurance that the Company's
controlled release product development efforts will be successfully completed,
that required regulatory approvals will be obtained or that approved products
will be successfully manufactured or marketed.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 requires companies to recognize the receipt of certain
up-front non-refundable fees over the life of the related collaboration
agreement. The Company understands that the SEC intends to provide additional
guidelines during the third quarter of 2000 with respect to interpretations of
SAB 101 which may also affect the accounting for certain milestone fees included
in multi-element agreements. The Company intends to make a change in its
accounting policy for up-front non-refundable fees, as required, in the fourth
quarter of 2000, however, it is currently unknown whether the additional
guidelines from the SEC will affect the Company's current accounting policies
relating to milestone fees received in connection with


                                       8
<PAGE>   9


its multi-element collaboration agreements. Any changes made for the adoption of
SAB 101 will result in a non-cash charge to operations for the cumulative effect
of the change as of January 1, 2000. The effect of the change for up-front
non-refundable fees previously recognized is not expected to be material to the
results of operations for the year.

     The Company's results of operations may fluctuate from quarter to quarter
depending on the volume and timing of orders of the Company's pharmaceutical
excipients and on variations in payments under the Company's collaborative
agreements, including payments upon the achievement of specified milestones and
royalty payments. The Company's quarterly operating results may also fluctuate
depending on other factors, including variations in gross margins of the
Company's products, mix of products sold, competition, regulatory actions,
litigation and currency exchange rate fluctuations.

     The Company's business is conducted internationally and may be affected by
fluctuations in currency exchange rates, as well as by governmental controls and
other risks associated with international sales (such as export licenses,
collectibility of accounts receivable, trade restrictions and changes in
tariffs). The Company's international subsidiaries transact a substantial
portion of their sales and purchases in European currencies other than their
functional currency, which can result in the Company having gains or losses from
currency exchange rate fluctuations.

     The Company does not use derivatives to hedge the impact of fluctuations in
foreign currencies.

RESULTS OF OPERATIONS

     Quarters Ended June 30, 2000 and 1999

     Total revenues increased 5.7% for the quarter ended June 30, 2000 to $8.8
million from $8.3 million for the quarter ended June 30, 1999. Product sales
decreased to $7.7 million for the quarter ended June 30, 2000 compared to $8.3
million for the quarter ended June 30, 1999, representing a decrease of 6.7%.
The decrease in product sales was due to softness in the Company's excipients
business during the second quarter of 2000 as a result of excess inventory held
by customers at the end of the first quarter of 2000. The Company believes that
this excess may have resulted from some overstocking by customers, among other
things, in anticipation of year 2000 issues, coupled with decreased demand for
products due to a milder-than-expected cough/cold season contributing to higher
than normal inventory levels. This overstocking issue may have further impact in
the third quarter of 2000. Royalties and licensing revenues increased by $1.0
million as a result of royalties earned primarily on Mylan's sales of the 30 mg
strength of generic Procardia XL.

     Gross profit increased to $3.6 million, or 40.5% of total revenues for the
quarter ended June 30, 2000 from $2.5 million, or 29.9% of total revenues for
the quarter ended June 30, 1999. The increase in gross profit was primarily due
to royalties and licensing fees which increased to $1.1 million from $70,000 for
the quarters ended June 30, 2000 and 1999, respectively. Gross profit percentage
on product sales increased to 32.0% from 29.3% for the quarters ended June 30,
2000 and 1999, respectively, partly due to product mix as well as lower
production costs from volume manufacturing efficiencies.

     Selling, general and administrative expenses decreased by 1.2% for the
quarter ended June 30, 2000 to $2.9 million from $3.0 million for the quarter
ended June 30, 1999.

     Research and product development expenses increased by 59.5% for the
quarter ended June 30, 2000 to $2.8 million from $1.8 million for the quarter
ended June 30, 1999. This increase was primarily due to increased expenses
associated with the continuing development of a narcotic analgesic product under
our collaboration agreement with Endo Pharmaceuticals Inc. ("Endo") which is
currently in Phase II clinical trials, as well as increased activity in the
Company's drug development pipeline.

     The effective tax rates for the quarters ended June 30, 2000 and 1999, were
an expense of 2% and a benefit of 2%, respectively. The effective rates are
higher than the federal statutory rate of a 34% benefit, due primarily to the
valuation allowance recorded to offset deferred tax assets relating to the
Company's net operating losses, and state and foreign income taxes.

     Six Months Ended June 30, 2000 and 1999

     Total revenues increased 11.1% for the six months ended June 30, 2000 to
$20.2 million from $18.2 million for the six months ended June 30, 1999. Product
sales increased to $18.2 million for the six months ended June 30, 2000 compared
to $18.0 million for the six months ended June 30, 1999. The increase in product
sales was primarily due to shipments of formulated bulk TIMERx to


                                       9
<PAGE>   10


Mylan in the first quarter of 2000, in anticipation of their launch of
Nifedipine XL, and prior to Mylan signing the supply and distribution agreement
with Pfizer. Partially offsetting the increased sales of formulated bulk TIMERx
included in product sales was a $600,000 decrease in excipients revenues during
the six months ended June 30, 2000. The increase in royalties and licensing fees
to $2.0 million from $150,000 for the six months ended June 30, 2000 and 1999,
respectively, was primarily attributable to royalties from Mylan on generic
Procardia XL, earned in the first and second quarters of 2000.

     Gross profit increased to $8.1 million or 40.4% of total revenues for the
six months ended June 30, 2000 from $5.4 million, or 29.5% of total revenues for
the six months ended June 30, 1999. The increase in gross profit was primarily
due to the increase in royalties and licensing fees noted above. Gross profit
percentage on product sales increased to 33.8% from 28.9% for the six months
ended June 30, 2000 and 1999, respectively, primarily due to increased sales of
formulated bulk TIMERx and PROSOLV, which have higher overall margins, and lower
production costs from volume manufacturing efficiencies.

     Selling, general and administrative expenses increased by 7.1% for the six
months ended June 30, 2000 to $5.9 million from $5.6 million for the six months
ended June 30, 1999. The increase in 2000 was significantly due to increased
selling and marketing expenses as the Company has increased the
commercialization efforts of its technologies.

     Research and product development expenses increased by 55.2% for the six
months ended June 30, 2000 to $5.4 million from $3.5 million for the six months
ended June 30, 1999. This increase was primarily due to increased expenses
associated with the continuing development of a narcotic analgesic product under
our collaboration agreement with Endo which is currently in Phase II clinical
trials, as well as increased activity in the Company's drug development
pipeline.

     The effective tax rates for the six months ended June 30, 2000 and 1999,
was an expense of 4% and a benefit of 0.5%, respectively. The effective rates
are higher than the federal statutory rate of a 34% benefit, due primarily to
the valuation allowance recorded to offset deferred tax assets relating to the
Company's net operating losses, and state and foreign income taxes.


LIQUIDITY AND CAPITAL RESOURCES

     Subsequent to the Distribution, the Company has funded its operations and
capital expenditures with cash from operations, advances under a credit facility
and the issuance of additional shares of common stock.

     The Company had an available revolving credit facility of $15.0 million of
unsecured financing (the "Credit Facility"), which was guaranteed by Penford. On
March 6, 2000, the Company completed a private placement of its common stock to
selected institutional and other accredited investors, resulting in the sale of
1,399,232 shares for approximately $18.2 million. The Company received net
proceeds of approximately $17 million after fees, of which $7.7 million was used
to repay the existing outstanding balance under the Company's Credit Facility as
required by its terms. The Credit Facility was subsequently terminated and is no
longer available to the Company.

     As of June 30, 2000, the Company had cash and cash equivalents of $6.3
million. The Company has no committed sources of capital. As of June 30, 2000,
the Company did not have any material commitments for capital expenditures. The
Company has entered into a strategic alliance agreement with Endo and the
Company expects to expend an additional $6 million, primarily in the second half
of 2000 and 2001 on the development of a drug. The Company expects to utilize
available cash and cash from operations to fund expenditures. However, the
Company may be required to raise additional funds to continue its development
activities under the Endo agreement. Either the Company or Endo may terminate
the agreement upon 30 days' prior written notice, at which time the Company's
funding obligations would cease.

     The Company had negative cash flow from operations in each of the periods
presented, primarily due to net losses for the periods, as well as significantly
higher trade receivables at June 30, as compared to December 31. Funds expended
for the acquisition of fixed assets were primarily related to efforts at the
Company's manufacturing facility in Iowa to increase capacity, and to a lesser
extent, to procure equipment used in research and product development. Funds
expended for intangible assets include costs to secure and defend patents on
technology developed by the Company and secure trademarks.

     The Company anticipates that its existing capital resources, as well as
internally generated funds, will enable it to maintain currently planned
operations at least into mid 2001. However, this expectation is based on the
Company's current operating plan,


                                       10
<PAGE>   11


which could change as a result of many factors and the Company could require
additional funding sooner than anticipated. The Company's requirements for
additional capital could be substantial and will depend on many factors,
including (i) the timing and amount of payments received under existing and
possible future collaborative agreements; (ii) the structure of any future
collaborative or development agreements; (iii) the progress of the Company's
collaborative and independent development projects; (iv) revenues from the
Company's sales of excipients; (v) the costs to the Company of bioequivalence
studies for the Company's products; (vi) the prosecution, defense and
enforcement of patent claims and other intellectual property rights; and (vii)
the development of manufacturing, marketing and sales capabilities.

     To the extent that additional capital is raised through the sale of equity
or convertible debt securities, the issuance of such securities could result in
dilution to the Company's shareholders. If adequate funds are not available, the
Company may be unable to comply with its obligations under its collaborative
agreements, which could result in the termination of such collaborative
agreements. In addition, the Company may be required to curtail operations
significantly or obtain funds through entering into collaborative agreements on
unfavorable terms. The Company's inability to raise capital would have a
material adverse effect on the Company's business, financial condition and
results of operations.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects", "intends", "may", and other
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by forward-looking statements
contained in this report and presented elsewhere by management from time to
time. These factors include the matters discussed in the Overview to Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the matters set forth under "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999, which
are expressly incorporated by reference herein.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK AND RISK MANAGEMENT POLICIES

     The operations of the Company are exposed to financial market risks,
including changes in interest rates and foreign currency exchange rates. The
Company invests its excess cash in mutual funds investing in securities of, or
collateralized by, short term U.S. government securities and money market funds
with strong credit ratings. As a result, the Company's investment income is most
sensitive to changes in the general level of U.S. interest rates. The Company's
international subsidiaries transact a substantial portion of their sales and
purchases in European currencies other than their functional currency, which can
result in the Company having gains or losses from currency exchange rate
fluctuations. The Company does not use derivatives to hedge the impact of
fluctuations in foreign currencies or interest rates. The Company does not
believe that the potential exposure is significant in light of the size of the
Company and its business. Accordingly, the Company believes that, while the
investment-grade securities it holds are subject to changes in the financial
standing of the issuer of such securities, the Company is not subject to any
material risks arising from changes in interest rates, foreign currency exchange
rates, or other market changes that affect market risk sensitive instruments.


                                       11
<PAGE>   12


                          PART II. -- OTHER INFORMATION


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Company's Annual Meeting of Shareholders held on June 6, 2000, the
     following proposals were adopted by the vote specified below:


          a.   Election of Class III directors for a term of three years:

<TABLE>
<CAPTION>
                                                             FOR            WITHHOLD
                                                             ---            --------
<S>                                                          <C>            <C>
                  Tod. R. Hamachek......................  10,960,524         83,585
                  Robert J. Hennessey...................  10,968,555         75,554
                  John N. Staniforth....................  10,968,555         75,554
</TABLE>

               The following directors did not stand for reelection as their
               terms in office continued after the Annual Meeting: Paul E.
               Freiman, Jere E. Goyan, Rolf H. Henel, N. Stewart Rogers and Anne
               M. VanLent.

          b.   Ratification of selection of Ernst & Young LLP as independent
               auditors of the Company for the current year:

                           FOR               AGAINST           ABSTAIN

                       10,998,306             7,676             38,126

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     a.   Exhibits.

          See exhibit index below for a list of the exhibits filed as part of
            this Quarterly Report on Form 10-Q, which exhibit index is
            incorporated herein by reference.

     b.   Reports on Form 8-K.

          On June 26, 2000, the Company filed a Report on Form 8-K reporting the
            Company's preliminary results for the quarter ending June 30, 2000.


                                       12
<PAGE>   13


                                    SIGNATURE


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                            PENWEST PHARMACEUTICALS CO.


Date:   August 9, 2000                        /s/ Jennifer L. Good
        --------------                        ---------------------
                                              Jennifer L. Good
                                              Vice President Finance and Chief
                                               Financial Officer
                                              (Principal Financial Officer)


                                       13
<PAGE>   14


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT NUMBER                                                         DESCRIPTION
        --------------                                                         -----------

<S>                                      <C>
             +10.1                       Letter Agreement dated February 25, 2000 by and between Mylan Pharmaceuticals Inc. and
                                         the Company

              27                         Financial Data Schedule

              99*                        Pages 31 through 40 of the Company's Annual Report on Form 10-K for the year ended
                                         December 31, 1999 as filed with the Securities and Exchange Commission on March 21,
                                         2000 (which is not deemed filed except to the extent that portions thereof are expressly
                                         incorporated  by reference herein)
</TABLE>


*Incorporated by reference from Exhibit 99 to the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 2000.

+Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.


                                       14