Penwest Pharmaceuticals reports net income of $3.9 million for first-quarter 2010

May 3 2010

Posts Third Consecutive Profitable Quarter

Opana ER Royalty From Endo Now Being Paid at Full Rate

Penwest Pharmaceuticals Co. (Nasdaq:PPCO) today announced its financial results for the first quarter ended March 31, 2010. Compared with the first quarter of 2009, first quarter 2010 revenues increased sharply to $8.8 million, and operating expenses decreased by 20%. The Company had net income of $0.12 per share for the first quarter of 2010.

Penwest's accomplishments in the first quarter of 2010 included: 

• Achieving profitability for the third consecutive quarter.
   
• Signing the Company's fourth research and development agreement with Otsuka Pharmaceutical for Penwest to develop formulations of an Otsuka compound utilizing Penwest's TIMERx® drug delivery technology. 
   
• Initiating a Phase IIa clinical trial of A0001 in patients with MELAS syndrome. The Company also has an ongoing Phase IIa clinical trial of A0001 in patients with Friedreich's Ataxia, which it initiated in the fourth quarter of 2009.
   
• Obtaining from the U.S. Food and Drug Administration (FDA) on March 1, 2010, "Fast Track" designation for A0001 for the treatment of Friedreich's Ataxia.  The FDA's Fast Track program is designed to facilitate the development and expedite the review of new drugs that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs. 

In addition, Penwest completed the repayment of the unfunded development costs for Opana ER through the temporary reduction in the royalty rates under the Company's agreement with Endo Pharmaceuticals.

Jennifer L. Good, President and Chief Executive Officer, said, "I am very pleased with the continued progress we made implementing the three key elements of our business plan in the first quarter. Having initiated the enrollment of patients in our two Phase IIa trials of A0001, we are looking forward to seeing data in the third quarter of this year. We have also continued to grow our drug delivery business with additional work under our on-going relationship with Otsuka, and with the signing of the multi-drug, multi-year collaboration with Alvogen that we announced early in the second quarter. Finally, with regard to Opana ER, during the first quarter we began to receive our full royalty rate. We are also continuing our patent litigation to protect the Opana ER franchise in the U.S. and recently announced a settlement of our patent litigation with Barr Laboratories.

"We believe that by executing our business plan we can create value for shareholders, both in the short term as reflected in our stock price, as well as over the long term through our various partnerships and by generating data from the clinical trials of A0001."

First Quarter 2010 Financial Results

Total revenues for the first quarter of 2010 were $8.8 million, compared with $5.3 million for the first quarter of 2009. The increase was primarily due to $7.2 million of revenue recognized in the first quarter of 2010 for royalties from Endo on its net sales of Opana ER, representing an increase of $2.8 million in royalties, compared with the first quarter of 2009. In the first quarter of 2010, Endo recouped the remainder of the $28 million in development costs that Endo funded on Penwest's behalf. As a result, the temporary 50% reduction in the Opana ER royalty rate that we were subject to ended during the quarter.  Additionally, the increase in revenues in the first quarter of 2010, compared with the first quarter of 2009 was partially due to a $535,000 increase in revenues recognized by Penwest under its drug delivery technology collaborations.

Net income for the first quarter of 2010 was $3.9 million, or $0.12 per share, compared with a net loss of $962,000, or a $0.03 loss per share, for the first quarter of 2009. 

Selling, general and administrative (SG&A) expenses were $1.6 million for the first quarter of 2010, compared with $2.3 million for the first quarter of 2009. The decrease was attributable to lower compensation expenses as a result of staff reductions implemented in the first and fourth quarters of 2009, and also reflected higher costs in the first quarter of 2009 with respect to a severance charge recorded in connection with the first quarter 2009 staff reduction and the 2009 proxy contest in which the Company was involved. Partially offsetting these decreased expenses were higher share-based compensation expenses in the first quarter of 2010, largely reflecting a non-cash credit recorded in the first quarter of 2009 that resulted from the forfeiture of stock options held by former employees in connection with the January 2009 staff reduction.

Research and product development (R&D) expenses were $2.2 million for the first quarter of 2010, compared with $3.0 million for the first quarter of 2009. The decrease of $798,000 was primarily due to lower spending on the development of A0001 and lower compensation costs as a result of staff reductions implemented in the first and fourth quarters of 2009.