Exhibit 99
RISK FACTORS
*WE HAVE NOT BEEN PROFITABLE*
         We have incurred net losses since 1994, including net losses ofapproximately $15.9 million, $8.8 million, and $7.7 million, during 2001, 2000,and 1999, respectively. As of December 31, 2001, our accumulated deficit wasapproximately $60.9 million. The Company expects net losses to continue atleast through 2003. A substantial portion of our revenues have been generatedfrom the sales of our pharmaceutical excipients. Our future profitability willdepend on several factors, including:
 • the successful commercialization ofTIMERx controlled release products;  • royalties from Mylan's sales of Pfizer's 30mg genericversion of Procardia XL;  • sales growth of our pharmaceutical excipient products; and  • the level of investment in research and developmentactivities.
*WE ARE DEPENDENT ON COLLABORATORS TO CONDUCT FULL-SCALE BIOEQUIVALENCE STUDIESAND CLINICAL TRIALS, OBTAIN REGULATORY APPROVALS FOR, AND MANUFACTURE, MARKET,AND SELL OUR TIMERx CONTROLLED RELEASE PRODUCTS*
         We develop and commercialize our TIMERx controlled release products incollaboration with pharmaceutical companies. We are parties to collaborativeagreements with third parties relating to most of our products. Underthese collaborations, depending on the structure of thecollaboration, we are dependent on our collaborators to fund, to conductfull-scale bioequivalence studies andclinical trials, obtain regulatory approvals for, and manufacture, market andsell products utilizing our TIMERx controlled release technology. We arealso dependent on Mylan with respect to the marketing and sale of the 30 mgstrength of Pfizer’s generic version of Procardia XL. Our collaborators may notdevote the resources necessary or may otherwise be unable to completedevelopment and commercialization of these potential products. Our existingcollaborations are subject to termination without cause on short notice undercertain
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circumstances.
         If we cannot maintain our existing collaborations or establish newcollaborations, we would be required to terminate the development andcommercialization of products or undertake product development andcommercialization activities at our own expense. Moreover, we have limitedexperience in conducting full-scale bioequivalence studies and clinical trials,preparing and submitting regulatory applications and manufacturing, marketingand selling the TIMERx controlled release products. We may not be successful inperforming these activities.
         Our existing collaborations and any future collaborations with thirdparties may not be scientifically or commercially successful. Factors that mayaffect the success of our collaborations include the following:
 • our collaborators may be pursuing alternative technologies ordeveloping alternative products, either on their own or in collaborationwith others, that may be competitive with the product as to which theyare collaborating with us, which could affect our collaborator’scommitment to the collaboration with us;  • reductions in marketing or sales efforts or a discontinuation ofmarketing or sales of our products by our collaborators would reduce ourrevenues, which will be based on a percentage of net sales by thecollaborator;  • our collaborators may terminate their collaborations with us, whichcould make it difficult for us to attract new collaborators or adverselyaffect our perception in the business and financial communities; and  • our collaborators may pursue higher priority programs or change thefocus of their development programs, which could affect thecollaborator’s commitment to us.
*WE FACE SIGNIFICANT COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,DEVELOPING OR COMMERCIALIZING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO*
         The pharmaceutical industry is highly competitive and is affected by newtechnologies, governmental regulations, health care legislation, availabilityof financing, litigation and other factors. Many of our competitors have longeroperating histories and greater financial, marketing, legal and other resourcesthan we do and than certain of our collaborators do.
         Our TIMERx business faces competition from numerous public and privatecompanies and their controlled release technologies, including Johnson &Johnson’s oral osmotic pump (OROS®) technology, multiparticulate systemsmarketed by Elan and Biovail, traditional matrix systems marketed bySkyePharma, plc and other controlled release technologies marketed or underdevelopment by Andrx Corporation, among others.
         OurTIMERx products in development will face competition from products with the same indicationas the TIMERx products being developed by Penwest. For instance, the Company expectsextended release Oxymorphone ER will face competition from Purdue Pharma’sOxyContin®.
         In addition to developing controlled release versions of immediate releaseproducts, we concentrated a significant portion of our initial developmentefforts on generic versions of branded controlled release products. The successof generic versions of branded controlled release products based on our TIMERxtechnology will depend, in large part, on the intensity of competition from thebranded controlled release product, other generic versions of the brandedcontrolled release product and other drugs and technologies that compete withthe branded controlled release product, as well as the timing of productapproval.
         The generic drug industry is characterized by frequent litigation betweengeneric drug companies and branded drug companies. Those companies withsignificant financial resources will be better able to bring and defend anysuch litigation.
         In our excipients business, we compete with a number of largemanufacturers and other distributors of excipient products, many of which havesubstantially greater financial, marketing and other resources than theCompany. Our principal competitor in this market is FMC Corporation, whichmarkets its own line of MCC excipient products and J. Rettenmaier & Sohne GmbH,a European manufacturer and marketer of MCC and sodium starch glycolateproducts.
*WE REQUIRE ADDITIONAL FUNDING*
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         Our requirements for additional capital are substantial and will depend onmany factors, including:
 • the structure of any future collaborative or development agreements;  • the progress of our collaborative and independent developmentprojects and funding obligations with respect to the projects;  • revenues from our excipientsproducts;  • the costs to us of clinical studies for our products;  • royalties received from Mylan;  • royalties from sales of TIMERxproducts;  • the timing and amount of payments received under existing and possible future collaborative agreements; and  • the prosecution, defense and enforcement of patent claims and other intellectual property rights.
         The Company has no committed sources of capital except for the CIT creditfacility. The Company anticipates its existing capital resources, including theamount available (as determined by a formula based on the Company'sEligible Accounts Receivable and Eligible Saleable Inventory, asdefined in the agreement,) under the $10 million financing arrangement with CIT Credit,will be sufficient to fund operations through the first quarter of 2003.
         Additional financing may not be available to Penwest on acceptable terms,if at all. If adequate funds are not available, Penwest may be required to (i)significantly curtail its product commercialization efforts, includingterminating existing collaborative agreements; (ii) obtain funds througharrangements with collaborators or others on adverse terms to Penwestthat mayrequire Penwest to relinquish rights to certain of its technologies, productcandidates, or products which Penwest would otherwise pursue on its own or thatwould significantly dilute the Company’s stockholders; (iii) significantlyscale back or terminate operations and/or; (iv) seek relief under applicablebankruptcy laws.
*IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL OR TAKE LONGER TO COMPLETE THAN WEEXPECT, WE MAY NOT BE ABLE TO DEVELOP AND COMMERCIALIZE CERTAIN OF OUR PRODUCTS*
         In order to obtain regulatory approvals for the commercial sale of certainof our potential products, including controlled release versions of immediaterelease drugs and new chemical entities, our collaborators will be required tocomplete clinical trials in humans to demonstrate the safety and efficacy ofthe products. Our collaborators may not be able to obtain authority from theFDA or other regulatory agencies to commence or complete these clinical trials.
         The results from preclinical testing of a product that is underdevelopment may not be predictive of results that will be obtained in humanclinical trials. In addition, the results of early human clinical trials maynot be predictive of results that will be obtained in larger scale advancedstage clinical trials. Furthermore, we, one of our collaborators, or the FDAmay suspend clinical trials at any time if the subjects or patientsparticipating in such trials are being exposed to unacceptable health risks, orfor other reasons.
         The rate of completion of clinical trials is dependent in part upon therate of enrollment of patients. Patient accrual is a function of many factorsincluding the size of the patient population, the proximity of patients toclinical sites, the eligibility criteria for the study and the existence ofcompetitive clinical trials. Delays in planned patient enrollment may result inincreased costs and program delays.
         We and our collaborators may not be able to successfully complete anyclinical trial of a potential product within any specified time period. In somecases, we may not be able to complete the trial at all. Moreover, clinicaltrials may not show any potential product to be safe or efficacious. Thus, theFDA and other regulatory authorities may not approve any of our potentialproducts for any indication.
         Our business, financial condition, or results of operations could bematerially adversely affected if:
 • we or our collaborators are unable to complete a clinical trial of one of our potential products;
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 • the results of any clinical trial are unfavorable; or  • the time or cost of completing the trial exceeds our expectations.
*WE MAY NOT OBTAIN REGULATORY APPROVAL; THE APPROVAL PROCESS CAN BETIME-CONSUMING AND EXPENSIVE*
         The development, clinical testing, manufacture, marketing and sale ofpharmaceutical products are subject to extensive federal, state and localregulation in the United States and other countries. This regulatory approvalprocess can be time-consuming and expensive.
         We may encounter delays or rejections during any stage of the regulatoryapproval process based upon the failure of clinical data to demonstratecompliance with, or upon the failure of the product to meet, the FDA’srequirements for safety, efficacy and quality; and those requirements maybecome more stringent due to changes in regulatory agency policy or theadoption of new regulations. After submission of a marketing application, inthe form of an NDA or an ANDA, the FDA may deny the application, may requireadditional testing or data and/or may require postmarketing testing andsurveillance to monitor the safety or efficacy of a product. While the U.S.Food, Drug and Cosmetic Act, or FDCA, provides for a 180-day review period, theFDA commonly takes one to two years to grant final approval to a marketingapplication (NDA or ANDA). Further, the terms of approval of any marketingapplication, including the labeling content, may be more restrictive than wedesire and could affect the marketability of products incorporating ourcontrolled release technology.
         Some of the controlled release products that we are developing with ourcollaborators are generic versions of branded controlled release products,which require the filing of ANDAs. Certain ANDA procedures for generic versionsof controlled release products are the subject of petitions filed by brand namedrug manufacturers, which seek changes from the FDA in the approval process forgeneric drugs. These requested changes include, among other things, tighterstandards for certain bioequivalence studies and disallowance of the use by ageneric drug manufacturer in its ANDA of proprietary data submitted by theoriginal manufacturer as part of an original new drug application. Any changesin FDA regulations that make ANDA approvals more difficult may have a materialadverse effect on our business, financial condition and results of operations.
         Other products containing our TIMERx controlled release technology requirethe filing of an NDA. A full NDA must include complete reports of preclinical,clinical and other studies to prove adequately that the product is safe andeffective, which involves, among other things, full clinical testing, and as aresult requires the expenditure of substantial resources. In certain casesinvolving controlled release versions of FDA-approved immediate release drugs,we may be able to rely on existing publicly available safety and efficacy datato support an NDA for controlled release products under Section 505(b)(2) ofthe FDCA when such data exists for an approved immediate release version of thesame chemical entity. However, we can provide no assurance that the FDA willaccept such section 505(b)(2) NDA, or that we will be able to obtain publiclyavailable data that is useful. The section 505(b)(2) NDA process is a highlyuncertain avenue to approval because the FDA’s policies on section 505(b)(2)NDAs have not yet been fully developed. There can be no assurance that the FDAwill approve an application submitted under section 505(b)(2) in a timelymanner or at all.
         The FDA also has the authority to revoke or suspend approvals ofpreviously approved products for cause, to debar companies and individuals fromparticipating in the drug-approval process, to request recalls of allegedlyviolative products, to seize allegedly volative products, to obtain injunctionsto close manufacturing plants allegedly not operating in conformity withcurrent Good Manufacturing Practices and to stop shipments of allegedlyviolative products. The FDA may seek to impose pre-clearance requirements onproducts currently being marketed without FDA approval, and there can be noassurance that the Company or its third-party manufacturers or collaboratorswill be able to obtain approval for such products within the time periodspecified by the FDA.
*EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOINGREGULATORY REVIEW*
         If regulatory approval of a product is granted, such approval may besubject to limitations on the indicated uses for which the product may bemarketed or contain requirements for costly post-marketing follow-up studies.As to products for which marketing approval is obtained, the manufacturer ofthe product and the manufacturing facilities will be subject to continualreview and periodic inspections by the FDA and other regulatory authorities.The subsequent discovery of previously unknown problems with the product,
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manufacturer or facility may result in restrictions on the product ormanufacturer, including withdrawal of the product from the market.
         If we fail to comply with applicable regulatory requirements, we may besubject to fines, suspension or withdrawal of regulatory approvals, productrecalls, seizure of products, operating restrictions and criminal prosecution.
*OUR CONTROLLED RELEASE PRODUCTS THAT ARE GENERIC VERSIONS OF BRANDED CONTROLLEDRELEASE PRODUCTS THAT ARE COVERED BY ONE OR MORE PATENTS MAY BE SUBJECT TOLITIGATION*
         We expect that our collaborators will file ANDAs for our controlledrelease products that are generic versions of branded controlled releaseproducts that are covered by one or more patents. It is likely that the ownersof the patents covering the brand name product or the sponsors of the NDA withrespect to the branded product will sue or undertake regulatory initiatives topreserve marketing exclusivity, as Pfizer did with respect to Nifedipine XL.Any significant delay in obtaining FDA approval to market our productcandidates as a result of litigation, as well as the expense of suchlitigation, whether or not we or our collaborators are successful, could have amaterial adverse effect on our business, financial condition and results ofoperations.
*THE MARKET MAY NOT BE RECEPTIVE TO PRODUCTS INCORPORATING OUR TIMERx CONTROLLEDRELEASE TECHNOLOGY*
         The commercial success of products incorporating our controlled releasetechnology that are approved for marketing by the FDA and other regulatoryauthorities will depend upon their acceptance by the medical community andthird party payors as clinically useful, cost-effective and safe. Noproduct based on the TIMERx technology is marketed in the UnitedStates, so there can be no assurance as to market acceptance.
         Other factors that we believe could materially affect market acceptance ofthese products include:
 • the timing of the receipt of marketing approvals and the countries in which such approvals are obtained;  • the safety and efficacy of the product as compared to competitive products; and  • the cost-effectiveness of the product and the ability to receive third party reimbursement.
*OUR SUCCESS DEPENDS ON OUR PROTECTING OUR PATENTS AND PATENTED RIGHTS*
         Our success depends in significant part on our ability to developpatentable products, to obtain patent protection for our products, both in theUnited States and in other countries, and to enforce these patents. The patentpositions of pharmaceutical firms, including us, are generally uncertain andinvolve complex legal and factual questions. As a result, patents may not issuefrom any patent applications that we own or license. If patents do issue, theclaims allowed may not be sufficiently broad to protect our technology. Inaddition, issued patents that we own or license may be challenged, invalidatedor circumvented. Our patents also may not afford us protection againstcompetitors with similar technology.
         Our success also depends on our not infringing patents issued tocompetitors or others. We are aware of patents and patent applicationsbelonging to competitors and others that may require us to alter our productsor processes, pay licensing fees or cease certain activities.
         We may not be able to obtain a license to any technology owned by a thirdparty that we require to manufacture or market one or more products. Even if wecan obtain a license, the financial and other terms may be disadvantageous.
         Our success also depends on our maintaining the confidentiality of ourtrade secrets and patented know-how. We seek to protect such information byentering into confidentiality agreements with employees, consultants, licenseesand pharmaceutical companies. These agreements may be breached by such parties.We may not be able to obtain an adequate, or perhaps, any remedy to such abreach. In addition, our trade secrets may otherwise become known or beindependently developed by our competitors.
*WE MAY BECOME INVOLVED IN PATENT LITIGATION OR OTHER INTELLECTUAL PROPERTYPROCEEDINGS RELATING TO OUR PRODUCTS OR PROCESSES WHICH COULD RESULT INLIABILITY FOR DAMAGE OR STOP OUR DEVELOPMENT AND COMMERCIALIZATION EFFORTS*
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         The pharmaceutical industry has been characterized by significantlitigation and interference and other proceedings regarding patents, patentapplications and other intellectual property rights. The types of situations inwhich we may become parties to such litigation or proceedings include:
 • We or our collaborators may initiate litigation or other proceedingsagainst third parties to enforce our patent rights.  • We or our collaborators may initiate litigation or other proceedingsagainst third parties to seek to invalidate the patents held by suchthird parties or to obtain a judgment that our products or processes donot infringe such third parties’ patents.  • If our competitors file patent applications that claim technologyalso claimed by us, we or our collaborators may participate ininterference or opposition proceedings to determine the priority ofinvention.  • If third parties initiate litigation claiming that our processes orproducts infringe their patent or other intellectual property rights, weand our collaborators will need to defend against such proceedings.
         An adverse outcome in any litigation or other proceeding could subject usto significant liabilities to third parties and require us to cease using thetechnology that is at issue or to license the technology from third parties. Wemay not be able to obtain any required licenses on commercially acceptableterms or at all.
         The cost of any patent litigation or other proceeding, even if resolved inour favor, could be substantial. Although the legal costs of defendinglitigation relating to a patent infringement claim are generally thecontractual responsibility of our collaborators, (unless such claim relates toTIMERx in which case such costs are our responsibility) we could nonethelessincur significant unreimbursed costs in participating and assisting in thelitigation. Some of our competitors may be able to sustain the cost of suchlitigation and proceedings more effectively than we can because of theirsubstantially greater resources. Uncertainties resulting from the initiationand continuation of patent litigation or other proceedings could have amaterial adverse effect on our ability to complete in the marketplace. Patentlitigation and other proceedings may also absorb significant management time.
*WE HAVE ONLY LIMITED MANUFACTURING CAPABILITIES AND WILL BE DEPENDENT ON THIRDPARTY MANUFACTURERS*
         We lack commercial scale facilities to manufacture our TIMERx material inaccordance with current GMP requirements prescribed by the FDA. We currentlyrely on Draxis Pharma, Inc. for the bulk manufacture of our TIMERx material fordelivery to our collaborators under a contract that expires in September 2004.The agreement shall be automatically renewed for successive one-yearperiods, unless either party gives notice of its intent not torenew the contract, at least six months prior to the end of the then-current term.
         There are a limited number of manufacturers that operate under GMPregulations capable of manufacturing our TIMERx material. We have not yetqualified a second source of supply. In the event that our current manufactureris unable to manufacture the TIMERx material in the required quantities, on atimely basis or at all, we may be unable to obtain alternative contractmanufacturing, or obtain such manufacturing on commercially reasonable terms.
         If our third party manufacturer fails to perform its obligations, we maybe adversely affected in a number of ways, including:
 • our collaborators may not be able to meet commercial demands for our products on a timely basis;  • our collaborators may not be able to initiate or continue clinical trials of products that are under development; and  • our collaborators may be delayed in submitting applications for regulatory approvals of our products.
         We have limited experience in manufacturing TIMERx material on acommercial scale and no facilities or equipment to do so. If we determine todevelop our own manufacturing capabilities, we will need to recruit qualifiedpersonnel and build or lease the requisite facilities and equipment. We may notbe able to successfully develop our own manufacturing capabilities. Moreover,it may be very costly and time consuming for us to develop such capabilities.
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         The manufacture of any of our products (both TIMERx material andexcipients) is subject to regulation by the FDA and comparable agencies inforeign countries. Any delay in complying or failure to comply with suchmanufacturing requirements could materially adversely affect the marketing ofour products and our business, financial condition and results of operations.
*WE ARE DEPENDENT UPON A LIMITED NUMBER OF SUPPLIERS FOR THE GUMS USED IN OUR TIMERxMATERIAL AND UPON A LIMITED NUMBER OF SUPPLIERS FOR THE WOOD PULP USED IN THEMANUFACTURE OF OUR EXCIPIENTS*
         Our TIMERx drug delivery system is a hydrophilic matrix combiningprimarily two polysaccharides, xanthan and locust bean gums, in the presence ofdextrose. We purchase these gums from a sole source supplier. Emcocel andProsolv, our two largest selling excipients, are manufactured from a specialtygrade of wood pulp. We have qualified alternate suppliers with respect to suchmaterials, but we can provide no assurance that interruptions in supplies willnot occur in the future or that we will not have to obtain substitutesuppliers. Any interruption in these supplies could have a material adverseeffect on our ability to manufacture bulk TIMERx for delivery to ourcollaborators or to manufacture these excipients.
*IF OUR COLLABORATORS FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT BY THIRDPARTY PAYORS FOR OUR CONTROLLED RELEASE PRODUCTS, THEY MAY NOT BE ABLE TOSUCCESSFULLY COMMERCIALIZE CONTROLLED RELEASE PRODUCTS IN CERTAIN MARKETS*
         The availability of reimbursement by governmental and other third partypayors affects the market for any pharmaceutical product. These third partypayors continually attempt to contain or reduce the costs of health care bychallenging the prices charged for medical products and services. In certainforeign countries, particularly the countries of the European Union, thepricing of prescription pharmaceuticals is subject to governmental control.
         The generic versions of controlled release products being developed by usand our collaborators may be assigned an AB rating if the FDA considers theproduct to be therapeutically equivalent to the branded controlled releasedrug. Failure to obtain an AB rating from the FDA would indicate that forcertain purposes the drug would not be deemed to be therapeutically equivalent,would not be fully substitutable for the branded controlled release drug andwould not be relied upon by Medicaid and Medicare formularies forreimbursement.
         In both the U.S. and certain foreign jurisdictions, there have been anumber of legislative and regulatory proposals to change the health caresystem. Further proposals are likely. The potential for adoption of theseproposals may affect our ability to raise capital, obtain additionalcollaborative partners and market our products.
         If we or our collaborators obtain marketing approvals for our products, weexpect to experience pricing pressure due to the trend toward managed healthcare, the increasing influence of health maintenance organizations andadditional legislative proposals. We may not be able to sell our productsprofitably if reimbursement is unavailable or limited in scope or amount.
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*WE WILL BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAINADEQUATE PRODUCT LIABILITY INSURANCE*
         Our business exposes us to potential product liability risks which areinherent in the testing, manufacturing, marketing and sale of pharmaceuticalproducts. Product liability claims might be made by consumers, health careproviders, pharmaceutical companies, or others that sell our products. Theseclaims may be made even with respect to those products that are manufactured inlicensed and regulated facilities or that otherwise possess regulatory approvalfor commercial sale.
         We are currently covered by primary product liability insurance in theamount of $1 million per occurrence and $2 million annually in the aggregate ona claims-made basis and by umbrella liability insurance in excess of $25million which can also be used for product liability insurance. This coveragemay not be adequate to cover any product liability claims. Product liabilitycoverage is expensive. In the future, we may not be able to maintain or obtainsuch product liability insurance at a reasonable cost or in sufficient amountsto protect us against losses due to liability claims. Any claims that are notcovered by product liability insurance could have a material adverse effect onour business, financial condition and results of operations.
*THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE*
         The market price of our common stock, like the market prices forsecurities of pharmaceutical, biopharmaceutical and biotechnology companies,have historically been highly volatile. The market from time to timeexperiences significant price and volume fluctuations that are unrelated to theoperating performance of particular companies. Factors such as fluctuations inour operating results, future sales of our common stock, announcements oftechnological innovations or new therapeutic products by us or our competitors,announcements regarding collaborative agreements, clinical trial results,government regulation, developments in patent or other proprietary rights,public concern as to the safety of drugs developed by us or others, changes inreimbursement policies, comments made by securities analysts and general marketconditions may have a significant effect on the market price of the commonstock.
*CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND OFWASHINGTON LAW, AS WELL AS THE RIGHTS AGREEMENT TO WHICH WE ARE A PARTY, MAKE ATAKEOVER OF PENWEST MORE DIFFICULT*
         Provisions of our Certificate of Incorporation, our Bylaws and Washingtonlaw, as well as the Rights Agreement to which we are a party, may have theeffect of deterring hostile takeovers or delaying or preventing changes incontrol or management of our company, including transactions in which ourstockholders might otherwise receive a premium for their shares over thencurrent market prices. In addition, these provisions may limit the ability ofstockholders to approve transactions that they may deem to be in their bestinterest.
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