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                                  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 March 31, 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 May 10, 2000.

                 Class                                  Outstanding
      -----------------------------                     -----------
      Common stock, par value $.001                      12,610,975




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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 2.    Changes in Securities and Use of Proceeds.............................     12

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

Signatures..............................................................................     13

Exhibit Index...........................................................................     13
</TABLE>







                                       2
<PAGE>   3







                         PART I -- FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS


                           PENWEST PHARMACEUTICALS CO.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>


                                                                   MARCH 31,   DECEMBER 31,
                                                                     2000           1999
                                                                  ----------   ------------
                                                                  (Unaudited)     (Note 2)
<S>                                                                <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents ...................................    $  9,954       $    739
  Trade accounts receivable, net of allowance for
     doubtful accounts of  $259 and $245 ......................       6,506          5,043
Inventories:
  Raw materials and other .....................................       1,131          1,513
  Finished goods ..............................................       5,610          6,136
                                                                   --------       --------
                                                                      6,741          7,649
  Prepaid expenses and other current assets ...................         491            629
  Deferred income taxes .......................................         297            297
                                                                   --------       --------
     Total current assets .....................................      23,989         14,357
  Fixed assets, net ...........................................      18,696         18,942
  Other assets ................................................       5,125          5,118
                                                                   --------       --------
     Total assets .............................................    $ 47,810       $ 38,417
                                                                   ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ............................................    $  2,069       $  3,296
  Accrued expenses ............................................       4,176          2,707
  Taxes payable ...............................................         411            344
                                                                   --------       --------
       Total current liabilities ..............................       6,656          6,347

  Loans payable refinanced in March 2000 ......................        --            6,700
  Deferred income taxes .......................................         509            520
  Other long-term liabilities .................................       2,387          2,341
                                                                   --------       --------
       Total liabilities ......................................       9,552         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
     12,610,975shares in 2000 and 11,148,718
      shares in 1999 ..........................................          12             11
  Additional paid in capital ..................................      76,944         59,718
  Accumulated deficit .........................................     (37,450)       (36,159)
  Accumulated other comprehensive loss ........................      (1,248)        (1,061)
                                                                   --------       --------
       Total shareholders' equity .............................      38,258         22,509
                                                                   --------       --------
       Total liabilities and shareholders' equity .............    $ 47,810       $ 38,417
                                                                   ========       ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.





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




                                                              THREE MONTHS
                                                             ENDED MARCH 31,
                                                          2000            1999
                                                        --------       ---------
                                                               (UNAUDITED)
Revenues
  Product sales .....................................   $10,437       $ 9,737
  Royalties and licensing fees ......................       912            79
                                                        -------       -------
      Total revenues ................................    11,349         9,816
Cost of product sales ...............................     6,773         6,944
                                                        -------       -------
    Gross profit ....................................     4,576         2,872
Operating expenses
  Selling, general and administrative ...............     3,025         2,596
  Research and product development ..................     2,620         1,737
                                                        -------       -------
    Total operating expenses ........................     5,645         4,333
                                                        -------       -------
Loss from operations ................................    (1,069)       (1,461)
Interest expense ....................................       126            64
                                                        -------       -------
Loss before income taxes ............................    (1,195)       (1,525)
Income tax expense ..................................        96            16
                                                        -------       -------
Net loss ............................................   $(1,291)      $(1,541)
                                                        =======       =======

Basic and diluted net loss per share ................   $  (.11)      $  (.14)
                                                        =======       =======

Weighted average shares of common stock
   outstanding ......................................    11,554        11,054
                                                        =======       =======


     See accompanying notes to condensed consolidated financial statements.




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



                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                            2000       1999
                                                           -------    -------
                                                               (UNAUDITED)

Net cash used in operating activities .................    $  (743)   $  (806)

Investing activities:
  Acquisitions of fixed assets, net ...................       (490)      (109)
  Other ...............................................        (56)       (89)
                                                           -------    -------
Net cash used in investing activities .................       (546)      (198)

Financing activities:
  Borrowings from credit facility .....................      2,800      2,200
  Repayments of credit facility .......................     (9,500)    (1,600)
  Issuance of common stock, net .......................     17,227        398
                                                           -------    -------
Net cash provided by financing activities .............     10,527        998

Effect of exchange rate changes on cash and cash
 equivalents ..........................................        (23)       (79)
                                                           -------    -------
Net increase (decrease) in cash and cash equivalents ..      9,215        (85)
Cash and cash equivalents at beginning of period ......        739      1,476
                                                           -------    -------
Cash and cash equivalents at end of period ............    $ 9,954    $ 1,391
                                                           =======    =======



     See accompanying notes to condensed consolidated financial statements.






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                           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, 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 excipients 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
    three month period ended March 31, 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 second 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 second 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 each of the three month periods ended March
    31, 2000 and 1999, were expenses of 8% and 1%, respectively. The effective
    rates are higher than the federal statutory rate of a 34% benefit primarily
    due 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 periods ended
    March 31, 2000 and 1999 are as follows:

                                                 THREE MONTHS ENDED MARCH 31,
                                                   2000                 1999
                                                 --------            --------
                                                        (IN THOUSANDS)

    Net loss                                      $(1,291)           $(1,541)
    Foreign currency translation adjustments         (187)              (283)
                                                  --------           --------

    Comprehensive loss                            $(1,478)           $(1,824)
                                                  ========           ========


         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. Approximately
    $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 has agreed to pay Penwest a royalty on all future net sales
    of Pfizer's 30 mg generic version of Procardia XL. The royalty percentage is
    comparable to those called for in Penwest's original agreement with Mylan
    for Nifedipine XL. Mylan has retained the marketing rights to the 30 mg
    strength of Nifedipine XL. Mylan has also agreed to purchase from the
    Company 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
excipients 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 March 31, 2000, the
Company's accumulated deficit was approximately $37.5 million. The Company
expects net losses to continue at least into mid 2000. 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 (as described later) and, to a lesser extent, an increase in sales
of its other pharmaceutical excipients products. 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 Pharmaceuticals ("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
has agreed to pay Penwest a royalty on all future net sales of Pfizer's 30 mg
generic version of Procardia XL. The royalty percentage is comparable to those
called for in Penwest's original agreement with Mylan for Nifedipine XL. Mylan
has retained the marketing rights to the 30 mg strength of Nifedipine XL. Mylan
has also agreed to purchase from the Company formulated bulk TIMERx manufactured
for Nifedipine XL.

    Under most of the Company's collaborative agreements, 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. Except for royalties from Mylan recorded in the
first quarter of 2000, relating to Mylan's sales of Pfizer's 30 mg generic
version of Procardia XL, substantially all of the drug delivery revenues
generated to date have been milestone fees received for products under
development as well as sales of formulated TIMERx. 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 second 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 second
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
result in a non-cash




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<PAGE>   9

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. 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

    Quarter Ended March 31, 2000 and 1999

    Total revenues increased 15.6% for the first quarter of 2000 to $11.3
million from $9.8 million for the first quarter of 1999. Product sales increased
to $10.4 million for the first quarter of 2000 compared to $9.7 million for the
first quarter of 1999, representing an increase of 7.2%. The increase in product
sales was primarily due to shipments of formulated bulk TIMERx to Mylan in
anticipation of their launch of Nifedipine XL and prior to their supply and
distribution agreement with Pfizer. 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 has agreed to pay
Penwest a royalty on all future net sales of Pfizer's 30 mg generic version of
Procardia XL. The royalty percentage is comparable to those called for in
Penwest's original agreement with Mylan for Nifedipine XL. Mylan has retained
the marketing rights to the 30 mg strength of Nifedipine XL. Mylan has also
agreed to purchase from the Company certain formulated bulk TIMERx manufactured
for Nifedipine XL, the remainder of which will be shipped in the third quarter
of 2000. The increase in royalties and licensing fee revenues was also primarily
attributable to royalties from Mylan on generic Procardia XL, earned in the
first quarter of 2000.

    Gross profit increased to $4.6 million or 40.3% of total revenues for the
first quarter of 2000 from $2.9 million or 29.3% of total revenues for the first
quarter of 1999. Gross profit percentage on product sales increased to 35.1% for
the first quarter of 2000 from 28.7% for the first quarter of 1999. The increase
in overall gross profit percentage was primarily due to royalties from Mylan,
and increased sales of formulated bulk TIMERx and PROSOLV, which have higher
overall margins.

    Selling, general and administrative expenses increased by 16.5% for the
first quarter of 2000 to $3.0 million from $2.6 million for the first quarter of
1999. The increase is primarily 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 50.8% for the first
quarter of 2000 to $2.6 million from $1.7 million for the first quarter of 1999.
This increase was primarily due to the continuing development of a narcotic
analgesic product 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 each of the quarters ended March 31, 2000 and
1999, were expenses of 8% and 1%, respectively. The effective rates are higher
than the federal statutory rate of a 34% benefit primarily due to the valuation
allowance recorded to offset deferred tax assets relating to the Company's net
operating losses, and state and foreign income taxes.



                                       9
<PAGE>   10


LIQUIDITY AND CAPITAL RESOURCES

    Subsequent to the Distribution, the Company has funded its operations and
capital expenditures from cash from operations and advances under a credit
facility. 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
approximately $17 million after fees. Approximately $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 March 31, 2000, the Company had cash and cash equivalents of $10.0
million. In April 2000, the Company paid approximately $1.3 million of expenses
associated with the private placement of its common stock. The Company has no
committed sources of capital. As of March 31, 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 $7 million, primarily in 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. However, 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 March 31, as compared with December 31 trade
receivables. This was partially offset by reduced inventory levels from December
31, 1999. Funds expended for the acquisition of fixed assets were primarily
related to efforts at the Company's manufacturing facility in Iowa to increase
capacity. 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, 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 traditional 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



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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.

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's interest rate risk has consisted of cash flow risk associated with
borrowing under its variable rate Credit Facility, which was paid off and
terminated in March 2000. 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.










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<PAGE>   12




                          PART II. -- OTHER INFORMATION


ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS

    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.


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 March 10, 2000, the Company filed a report on Form 8-K
                reporting the Company's private placement of common stock and
                the Company's March 2000 agreement with Mylan Pharmaceuticals
                Inc.












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                                   SIGNATURES



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:   May 12, 2000                           /s/ Tod R. Hamachek
                                               ---------------------------------
                                               Tod R. Hamachek
                                               Chairman of the Board and Chief
                                               Executive Officer
                                               (Principal Executive Officer)


Date:   May 12, 2000                           /s/ Jennifer L. Good
                                               --------------------------------
                                               Jennifer L. Good
                                               Vice President Finance and Chief
                                               Financial Officer
                                               (Principal Financial Officer)





                                  EXHIBIT INDEX

EXHIBIT NUMBER          DESCRIPTION

      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).






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