Recent business progress at Penwest Pharmaceuticals

Company Successfully Executing Focused Business Plan; Delivering Profitability and Gains in Shareholder Value

Anticipates Proxy Contest in Connection with June 22 Annual Meeting

Penwest Pharmaceuticals Co. (Nasdaq:PPCO) today sent a letter to its shareholders to provide an update on the Company's recent progress and on corporate governance developments. The full text of the letter from Paul E. Freiman, Chairman, and Jennifer L. Good, President and Chief Executive Officer, follows:

April 23, 2010

Dear Fellow Penwest Shareholder:

We are writing to provide you with an update on the recent progress at Penwest, and to let you know about an anticipated proxy contest at this year's annual meeting of shareholders.

You may recall that at the beginning of 2009, the Company was at a turning point. Facing a difficult economic environment, limited cash resources and key decisions to be made in our businesses, we adopted a business plan for 2009 with narrowed priorities and a set of clearly defined and measurable goals. We believed that this plan would build shareholder value in the short-term and prepare the Company for long-term profitable growth. 

We have spent this past year doing exactly what we said we would: creating value for Penwest shareholders. We have been successfully executing our focused business plan, delivering profitability and bolstering the Company's financial strength. This progress has been recognized by the markets as our stock price has risen from $1.57 per share on December 31, 2008, to $3.70 per share on April 21, 2010.  In addition, as a result of our disciplined execution, we have put ourselves in a position to return cash to shareholders through a special dividend, which we intend to declare in the fourth quarter of 2010.

The substantial progress we have made in each of the primary areas of our business includes the following achievements:

• Posting three consecutive quarters of profitability beginning in the third quarter of 2009 and including the first quarter of 2010, the results of which we expect to announce soon. We are now entitled to receive our full royalty under our collaboration with Endo Pharmaceuticals and have provided guidance for 2010 that we expect full-year profitability.
   
• Continuing to maximize the value of Opana ER through collaborations for developing, marketing and selling the product outside the U.S. To this end, we signed a licensing agreement with Valeant Pharmaceuticals for Canada, Australia and New Zealand, and are actively supporting Endo's efforts to license Opana ER in other territories outside the U.S. 
   
• Aggressively protecting the Opana ER franchise in the U.S. We recently announced a settlement of the Opana ER patent litigation with Barr Laboratories, Inc., which followed a previously announced settlement with Actavis South Atlantic LLC. Under the terms of the recent settlement with Barr, Penwest and Endo agreed to grant Barr a license to sell a generic version of Opana ER on or after September 15, 2012, or earlier under certain circumstances. We and Endo are continuing the Opana ER patent litigation against other generic manufacturers that we believe have infringed upon our patents and are also prosecuting multiple additional patent applications that are not the subject of either the current litigation or the settlement agreements. 
   
• Successfully completing our Phase Ib clinical trial of A0001 and advancing the compound into two separate Phase IIa trials. In the Phase Ib trial, the drug was well tolerated by subjects and no serious adverse events were reported. In addition, we observed a dose-dependent increase in exposure following repeat dosing and were able to establish a maximum tolerated dose. Based on these results, we designed and commenced two Phase IIa trials in two rare orphan disorders that currently have no approved treatments. One is in patients with Friedreich's Ataxia, and the other is in patients with A3243G mitochondrial DNA point mutation and impaired mitochondrial function (MELAS).  The goal of these trials is to demonstrate proof of concept regarding biological activity of the drug. These two trials are currently ongoing, with results expected in the third quarter of 2010. We also selected an additional compound – a new chemical entity – from Edison. We plan to decide the next steps for this compound based on the Phase IIa data from A0001.
   
• Growing our drug delivery business based on the technology we used successfully with Opana ER. We achieved a success-based development milestone – and the accompanying payment – under our first collaboration agreement with Otsuka Pharmaceutical, entered into our third and fourth research and development agreements with Otsuka and, most recently, reached a multi-drug generics agreement with Alvogen, Inc. This new partnership allows us to leverage our drug delivery technology for the formulation of generic drugs, an important segment of the market for extended release technology.

We were able to accomplish all of this while, at the same time, right-sizing the organization consistent with our current priorities and significantly reducing our operating expenses in 2009 by approximately 34% compared to 2008, and by 42% compared to 2007.  

The market has, in turn, reflected these achievements as the value of your shares in Penwest has appreciated approximately 136% since the beginning of 2009, when we announced our focused business plan. 

We're not stopping there. Our 2009 plan was intended to deliver shareholder value in the short term and prepare for long-term growth. And that's what it has done. To build on our successes and deliver further growth, we recently announced Penwest's business goals for 2010, and we are already hard at work to achieve them. Those objectives include:

• Working closely with Endo to maximize the value of Opana ER by seeking additional licensing agreements for Opana ER outside the U.S. and aggressively enforcing our U.S. patents and continuing to prosecute additional patent applications.
   
• Sharing the benefits of our Endo collaboration with Penwest shareholders, which we intend to do through the declaration of a special cash dividend payable in the fourth quarter of 2010.
   
• Completing both Phase IIa trials of A0001, thoroughly analyzing the data and making a "go/no-go" decision on this compound by the third quarter of 2010. 
   
• Exploring potential licensing opportunities for A0001 in anticipation of the completion of the Phase IIa trials.
   
• Growing the Company's drug delivery business both by completing formulation work on compounds under development and by signing additional deals.

We plan to continue to aggressively manage our expenses to ensure that Penwest's costs are appropriate given our priorities. As a small company, we also believe that it is in our shareholders' best interests to forge a number of strategic relationships and business partnerships to continue to build value for our shareholders. Our expanding relationships – such as those with Valeant, Otsuka and Alvogen, among others – and strong, disciplined execution are contributing to our recent success. 

Our 2009 successes were realized in a year when we became embroiled in a costly, burdensome proxy contest in which dissident shareholders attacked our business plan, stressed the urgent need for Penwest to immediately wind down the Company's operations and sued us unsuccessfully in three different lawsuits. Nevertheless, we remained focused on execution of our plan for the short- and long-term.

Given our current momentum, it is unfortunate that these same people, Kevin Tang and Joe Edelman, have indicated their intent to conduct another proxy contest in an effort to take full control of the Company. They do this despite our working cooperatively with them since their election to the Board last year, respectfully considering their viewpoints, demonstrating the success of our strategy, further reducing costs and announcing our intention to declare a dividend, as well as our repeated efforts to agree upon a compromise slate of directors with them to avoid a proxy contest. 

In their quest to take control of the Company without paying a premium to Penwest shareholders, Messrs. Tang and Edelman, who together own 41% of the Company, disregard the significant disruption to the Company and its business that a proxy contest would cause. Pursuing this path will force Penwest to once again incur significant costs and expend other resources, jeopardize current business partnerships and our ability to enter into new relationships, and risk the cohesiveness and morale of our employees and management team that we need to continue to execute our business plan. 

This is particularly troubling since, had we immediately wound down our operations last summer as they proposed at that time, Penwest shareholders would not have realized the value they have in their shares today, nor would shareholders be able to participate in the potential upside evidenced in our current initiatives. 

Our slate of directors for the upcoming annual meeting includes Paul E. Freiman, Chairman of the Board, Jennifer L. Good, President and CEO of Penwest, and Christophe Bianchi, M.D., Executive Vice President and Head of Commercial Operations at Millennium: The Takeda Oncology Company, each of whom is an experienced, highly qualified director. Electing the slate proposed by Messrs. Tang and Edelman rather than these key individuals will reward their disregard for the interests of all shareholders of Penwest.

Penwest's management team is successfully delivering on the Company's focused business plan. There are important decisions to be made and actions to be taken in a business in which disciplined execution is critical. This is not the time to turn over control of Penwest, change the team or interrupt the Company's momentum.  

We are confident in Penwest's future and are energized by the progress the Company is making. We have greatly appreciated your support, and we ask that you continue to do so as we pursue the right path for Penwest to build value for all of Penwest's shareholders.