-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qqa27TiyMzeLTaJFA/Hfywxy7+7WO+mTJ73xB5FVQwwws6Gcr6v/ddJvCl4vZj6H ZSqPGF6qG/AkBf25SnoBPw== 0000909012-08-001206.txt : 20081121 0000909012-08-001206.hdr.sgml : 20081121 20081121165746 ACCESSION NUMBER: 0000909012-08-001206 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20081121 DATE AS OF CHANGE: 20081121 GROUP MEMBERS: JOSEPH EDELMAN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PENWEST PHARMACEUTICALS CO CENTRAL INDEX KEY: 0001047188 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 911513032 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-55303 FILM NUMBER: 081208177 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY ROAD STREET 2: SUITE 11 CITY: DANBURY STATE: CT ZIP: 06810-5120 BUSINESS PHONE: 877-736-9378 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY ROAD STREET 2: SUITE 11 CITY: DANBURY STATE: CT ZIP: 06810-5120 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PERCEPTIVE ADVISORS LLC CENTRAL INDEX KEY: 0001224962 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 499 PARK AVENUE, 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 646-205-5340 MAIL ADDRESS: STREET 1: 499 PARK AVENUE, 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 t304751.txt PENWEST SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D/A (RULE 13D-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULES 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)(1) PENWEST PHARMACEUTICALS CO. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $0.001 - -------------------------------------------------------------------------------- (TITLE OF CLASS OF SECURITIES) 709754105 - -------------------------------------------------------------------------------- (CUSIP NUMBER) JOSEPH EDELMAN, 499 PARK AVENUE, 25TH FLOOR, NEW YORK, NY 10022, (646) 205-5300 - -------------------------------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS) NOVEMBER 21, 2008 - -------------------------------------------------------------------------------- (Date of Event Which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D/A, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the Schedule, including all exhibits. SEE Rule 13d-7(b) for other parties to whom copies are to be sent. - --------------- (1) The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, SEE the NOTES).
CUSIP No. 709754105 13D/A Page 2 of 10 Pages - --------- ------------------------------------------------------------------------------------------------------------ 1. NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY) PERCEPTIVE ADVISORS LLC - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A GROUP* (a) (b) - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 3. SEC USE ONLY - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 4. SOURCES OF FUNDS OO (Funds from Investment Advisory Clients). - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - --------- ------------------------------------------------------------------------------------------------------------ - ------------------- ----- -------------------------------------------------------------------------------------------- NUMBER OF 7. SHARES SOLE VOTING POWER ----- -------------------------------------------------------------------------------------------- ----- -------------------------------------------------------------------------------------------- BENEFICIALLY 8. OWNED BY SHARED VOTING POWER 6,697,208 ----- -------------------------------------------------------------------------------------------- ----- -------------------------------------------------------------------------------------------- EACH 9. REPORTING SOLE DISPOSITIVE POWER ----- -------------------------------------------------------------------------------------------- ----- -------------------------------------------------------------------------------------------- PERSON WITH 10. SHARED DISPOSITIVE POWER 6,697,208 ----- -------------------------------------------------------------------------------------------- - --------- ------------------------------------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,697,208 - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 21.15% - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON* IA - --------- ------------------------------------------------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 709754105 13D/A Page 3 of 10 Pages - --------- ------------------------------------------------------------------------------------------------------------ 1. NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY) JOSEPH EDELMAN - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A GROUP* (a) (b) - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 3. SEC USE ONLY - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 4. SOURCES OF FUNDS OO - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES OF AMERICA - --------- ------------------------------------------------------------------------------------------------------------ - ------------------- ----- -------------------------------------------------------------------------------------------- NUMBER OF 7. SHARES SOLE VOTING POWER 0 ----- -------------------------------------------------------------------------------------------- ----- -------------------------------------------------------------------------------------------- BENEFICIALLY 8. OWNED BY SHARED VOTING POWER 6,697,208 ----- -------------------------------------------------------------------------------------------- ----- -------------------------------------------------------------------------------------------- EACH 9. REPORTING SOLE DISPOSITIVE POWER 0 ----- -------------------------------------------------------------------------------------------- ----- -------------------------------------------------------------------------------------------- PERSON WITH 10. SHARED DISPOSITIVE POWER 6,697,208 ----- -------------------------------------------------------------------------------------------- - --------- ------------------------------------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,697,208 - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 21.15% - --------- ------------------------------------------------------------------------------------------------------------ - --------- ------------------------------------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON* IN - --------- ------------------------------------------------------------------------------------------------------------ * SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 709754105 13D/A Page 4 of 10 Pages ITEM 1 SECURITY AND ISSUER This Schedule 13D/A relates to the common stock, par value $0.001 (the "Common Stock"), of Penwest Pharmaceuticals Co. (the "Issuer"). The address of the principal executive offices of the Issuer is 39 Old Ridgebury Road, Suite 11, Danbury, CT 06810-5120. ITEM 2 IDENTITY AND BACKGROUND (a) The names of the persons filing this Schedule 13D/A (the "Schedule") are Perceptive Advisors LLC, a Delaware limited liability company (the "Investment Manager") and Joseph Edelman, the managing member of the Investment Manager. Such reporting persons are collectively referred to herein as the "Reporting Persons." The Investment Manager, in its capacity as investment manager of Perceptive Life Sciences Master Fund Ltd., a Cayman Islands company (the "Fund"), and to an account at First New York Trading, LLC (the "FNY Account"), has sole power to vote and dispose of the shares of Common Stock held by the Fund and the FNY Account. The Investment Manager disclaims any economic interest in or beneficial ownership of the shares of Common Stock covered by this Schedule. (b) The business address of the Reporting Persons is 499 Park Avenue, 25th Floor, New York, NY 10022. (c) This Schedule is filed on behalf of the Investment Manager and Mr. Edelman, the Fund and the FNY Account. The Fund and the FNY Account are the record and direct beneficial owners of the shares of Common Stock reported herein. The Investment Manager is the investment manager to the Fund and the FNY Account. Mr. Edelman is the managing member of the Investment Manager. The principal business of the Investment Manager is purchasing, holding and selling securities for investment purposes. The principal business of each of the Fund and the FNY Account is to invest in securities. (d) During the past five years none of the Reporting Persons has been convicted in a criminal proceeding. (e) During the past five years none of the Reporting Persons has been a party to a civil proceeding as a result of which it is subject to a judgment, decree or final order enjoining it from or mandating activities subject to federal or state securities laws, or finding it in violation of such laws. (f) Perceptive Advisors LLC is organized under the laws of Delaware, USA. Mr. Edelman is a citizen of the United States of America. ITEM 3 SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION The Fund and the FNY Account purchased the shares of Common Stock in open market transactions. CUSIP No. 709754105 13D/A Page 5 of 10 Pages ITEM 4 PURPOSE OF TRANSACTION On November 21, 2008 the Reporting Persons sent a letter to the Board of Directors of the Issuer expressing certain concerns with the direction of the Issuer's management. The letter is annexed hereto as Exhibit 2 and is also reproduced below: The Penwest Pharmaceuticals CO Board of Directors Penwest Pharmaceuticals CO 39 Old Ridgebury Road Suite 11 Danbury, CT 06810-5120 Ladies and Gentlemen: We are writing to the Board today to express our concern over the direction management is taking the company. Perceptive Advisors LLC and its affiliates own approximately 21% of the common stock of Penwest Pharmaceuticals (Penwest). We believe Penwest finds itself at a crossroad. With the recent failure in Parkinson's, disappointing nalbuphine data, the lack of new patents, and the current market environment, Penwest's viability as a going concern has never looked so bleak. Perceptive strongly believes the Opana ER franchise has significant value but steps must be immediately taken to extract and maintain this value. Penwest continues to invest in high risk R&D projects, a decision we believe will lead to the destruction of the value of its primary asset. It is time for the Board to make difficult decisions. If you take seriously your fiduciary responsibility to protect the minority shareholders of Penwest, then your only course of action is a dramatic scale back of Penwest's current R&D programs and infrastructure. This will lead to the company's immediate profitability and allow the market to recognize the inherent value of the Opana ER asset. OPANA ER ROYALTY STREAM NPV Penwest's current market value is $13 million. Net of cash at September 30, 2008 the market value is negative. It is non-debatable that Penwest currently trades at a level far below the NPV of the Opana ER (and any line extension) royalty stream. Our analysis of the value under three different set of circumstances is laid out below. We note that we believe the worst case scenario to be highly unlikely. It assumes that Impax will launch at risk, no settlement between Endo and the generic filers will be reached, and Endo is unsuccessful securing approval for any line extensions. We believe Endo is at work on line extension products for Opana ER which, as you are aware, would be royalty bearing at the same terms to Penwest. Our base case scenario assumes Impax will not launch at risk, but would launch in late 2012 after they prevail in all litigation and appeals. The best case scenario assumes the Opana ER patents are upheld, additional patents are granted, or Endo is able to settle, keeping Opana ER on the market through 2018. CUSIP No. 709754105 13D/A Page 6 of 10 Pages
WORST CASE SCENARIO: IMPAX LAUNCHES AT RISK IN MID-2010 Q4'08 2009 H1 2010 H2 2010 ----- ---- ------- ------- Opana ER Sales (000) 45,000 209,000 125,000 30,000 Royalty Rate 11.0% 22.8% 22.0% 22.0% TOTAL PRESENT VALUE (000) $56,652 Royalties Payable (000) 4,950 47,652 27,500 6,600 Net Royalty after ENDP Payment 4,950 24,652 27,500 6,600 PER DILUTED SHARE $1.59 Discount Periods 0 1 1.5 2 Discount Rate 10% 10% 10% Present Value (000) $ 4,950 $ 22,411 $ 23,837 $ 5,455 BASE CASE SCENARIO: IMPAX LAUNCHES GENERIC IN LATE 2012 Q4'08 2009 2010 2011 2012 ----- ---- ---- ---- ---- Opana ER Sales (000) 45,000 209,000 250,000 300,000 350,000 Royalty Rate 11.0% 23.0% 23.2% 23.5% 23.7% Royalties Payable (000) 4,950 48,070 58,000 70,500 82,950 TOTAL PRESENT VALUE (000) $185,298 Net Royalty after ENDP Payment 4,950 25,070 58,000 70,500 82,950 Discount Periods 0 1 2 3 4 PER DILUTED SHARE $5.20 Discount Rate 10% 10% 10% 10% Present Value (000) $ 4,950 $ 22,791 $ 47,934 $ 52,968 $ 56,656 BEST CASE SCENARIO: ADDITIONAL PATENTS GRANTED AND UPHELD Q4'08 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Opana ER Sales (000) 45,000 209,000 250,000 300,000 350,000 403,000 443,000 488,000 536,000 590,000 649,000 Royalty Rate 11.0% 23.0% 23.2% 23.5% 23.7% 23.9% 24.0% 24.1% 24.2% 24.2% 24.3% Royalties Payable (000) 4,950 48,070 58,000 70,500 82,950 96,317 106,320 117,608 129,712 142,780 157,707 Net Royalty after ENDP Payment 4,950 25,070 58,000 70,500 82,950 96,317 106,320 117,608 129,712 142,780 157,707 Discount Periods 0 1 2 3 4 5 6 7 8 9 10 Discount Rate 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Present Value (000) $ 4,950 $ 22,791 $ 47,934 $ 52,968 $ 56,656 $ 59,805 $ 60,015 $ 60,351 $ 60,512 $ 60,553 $ 60,803 TOTAL PRESENT VALUE (000) $547,337 PER DILUTED SHARE $15.36
RESEARCH AND DEVELOPMENT HISTORY Penwest has an accumulated deficit of over $230 million. Aside from the approval of Opana ER, which was largely accomplished with the help of Endo, the company's history is an unfortunate progression of failed development programs. On both the generic and branded side, Penwest has failed to deliver on projects the company believed were promising. Bioequivalence programs for Ditropan XL, Glucophage XR, and Procardia XL all failed in the early part of this decade. After this string of generic failures, Penwest evidently made a decision to focus on branded drug development. For the most part the results were the same. Our review of the company's documents reveals well over 20 proprietary drug programs that either failed or were dropped after money was spent on formulation and/or clinical development work. Three notable failures included: 1) PW2101, an extended release version of metoprolol for the treatment of hypertension that was rejected by the FDA after a $22 million investment, 2) PW2132, a once daily extended release version of torsemide that was terminated after a $4 million investment based on the belief it would not be differentiated, and 3) PW4142, an extended release formulation of nalbuphine for the treatment of pain which has been in Penwest's pipeline for over five CUSIP No. 709754105 13D/A Page 7 of 10 Pages years and just recently failed to meet its primary endpoint in a Phase II study. Given this track record in both generic and branded drug development, we question why Penwest, with the Board's support, continues to believe that continued R&D investment is in the best interest of the company's shareholders. More specifically, the company is currently pursuing an even riskier drug development strategy than ever before. At this point, Penwest's primary R&D effort is a Phase I program of novel chemical entities for the treatment of mitochondrial diseases. We are concerned this effort is nothing more than a "hail mary" strategy for the company. We are unsure why the Board believes the company has the expertise to take the mitochondrial program forward when management has had such limited success on lower risk reformulation endeavors. Penwest spent almost $6 million on R&D in the third quarter, down slightly year over year but up 30% over the second quarter. With $23 million of cash in the bank, the company has less than one year of cash based on its current burn rate. While the company is at little risk of running out of cash, we believe running the company at this level of spend is a strategic error. First, the current market has no tolerance for companies operating with less than one year of cash. Penwest willingly and intentionally put themselves into this position and should have foreseen the consequences with respect to the stock price. Second, as we have argued previously, the spend is not only too high but it is wasteful. If management is allowed to continue at this pace we fear all the income from Opana ER will disappear into high risk R&D programs, which based on industry probabilities are likely to fail. Management's assurances that drugs will be partnered, new patents will be granted, spending will be curtailed, trials will be successful, and value will be unlocked have all gone unfulfilled. The company's credibility is likely damaged beyond repair. As Penwest's largest shareholder, we urge the Board to protect the substantial remaining value of the Opana franchise by returning it back to the shareholders. Our recommendation is to cease all development activity and turn Penwest into a virtual company. If these steps are taken, we believe that buyers will emerge for the Opana royalty at levels far above Penwest's current market value. Perceptive does not see any other course of action that will accomplish this end. We remind you that your fiduciary duty is to the shareholders of Penwest for which you are accountable. Yours Truly, Joe Edelman CEO Perceptive Advisors, LLC * * * The Reporting Persons purchase shares of Common Stock of the Issuer in the ordinary course of business. The shares of Common Stock are held for investment purposes. Each Reporting Person expects to continuously review such person's investment in the Issuer and, depending on various factors including but not limited to, the price of the shares of Common Stock, the terms and conditions of the transaction, prevailing market conditions and such other considerations as such Reporting Person deems relevant, may at any time or from time to time, and subject to any required regulatory approvals, acquire additional shares of Common Stock, preferred stock or other securities convertible into or exercisable or exchangeable for Common Stock from time to time on the open market, in privately-negotiated transactions, directly from the Issuer, or upon the exercise or conversion of securities convertible into or exercisable or exchangeable for Common Stock. CUSIP No. 709754105 13D/A Page 8 of 10 Pages Each Reporting Person also may, at any time, subject to compliance with applicable securities laws and regulatory requirements dispose or distribute some or all of its or his Common Stock or such other securities as it or he owns or may subsequently acquire depending on various factors, including but not limited to, the price of the shares, the terms and conditions of the transaction and prevailing market conditions, as well as liquidity and diversification objectives. Consistent with their investment intent, each Reporting Person may from time to time discuss with the Issuer's management, directors, other shareholders and others, the Issuer's performance, business, strategic direction, capital structure, product development program, prospects and management, as well as various ways of maximizing stockholder value, which may or may not include extraordinary transactions. Each Reporting Person intends to participate in and influence the affairs of the Issuer through the exercise of its voting rights with respect to their shares of the Issuer's Common Stock. Except as indicated herein, no Reporting Person, as a stockholder of the Issuer, has any plan or proposal that relates or would result in any of the transactions or other matters specified in clauses (a) through (j) of Item 4 of Schedule 13D. Each Reporting Person may, at any time and from time to time, review or reconsider its or his position and/or change its or his purpose and/or formulate plans or proposals with respect thereto. CUSIP No. 709754105 13D/A Page 9 of 10 Pages ITEM 5 INTEREST IN SECURITIES OF THE ISSUER (a)-(b) The Reporting Persons may be deemed, for purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, to be the beneficial owners of an aggregate of 6,697,208 shares of Common Stock as of November 21, 2008, which represent 21.15% of the Issuer's outstanding shares of Common Stock. Such 6,697,208 shares of Common Stock are comprised of (i) 6,422,846 shares of Common Stock held by the Fund and (ii) 274,362 shares of Common Stock held by the FNY Account. The percentage calculation was based on 31,667,792 shares outstanding which is the total number of shares outstanding as of November 5, 2008 as reported by the Issuer on the Form 10-Q as filed with the Securities and Exchange Commission on November 10, 2008. - --------------------------- ---------- ------------- ------------- ------------- Sole Shared Sole Shared Voting Voting Dispositive Dispositive Power Power Power Power - --------------------------- ---------- ------------- ------------- ------------- - --------------------------- ---------- ------------- ------------- ------------- Perceptive Advisors LLC 0 6,697,208 0 6,697,208 - --------------------------- ---------- ------------- ------------- ------------- - --------------------------- ---------- ------------- ------------- ------------- Joseph Edelman 0 6,697,208 0 6,697,208 - --------------------------- ---------- ------------- ------------- ------------- The aggregate amount of shares owned by the Reporting Persons is 6,697,208. (c) Except as set forth below, there have been no transactions in the shares of Common Stock by any of the Reporting Persons since the last 13D/A filed with the Securities and Exchange Commission on October 23, 2008: ---------------------- -------------------------- --------------------- DATE SHARES PURCHASED PRICE ---------------------- -------------------------- --------------------- 10/24/008 3,000 5.0 ---------------------- -------------------------- --------------------- (d) - (e): Not applicable. ITEM 6 CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER None. ITEM 7 MATERIAL TO BE FILED AS EXHIBITS Joint Filing Agreement, dated as of November 21, 2008, by and among Perceptive Advisors LLC and Joseph Edelman. Letter to Board of Directors of Penwest Pharmaceuticals Co., dated November 21, 2008. CUSIP No. 709754105 13D/A Page 10 of 10 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. November 21, 2008 Date /s/ Perceptive Advisors LLC Signature Joseph Edelman/Managing Member Name/Title November 21, 2008 Date /s/ Joseph Edelman Signature Joseph Edelman Name/Title The original statement shall be signed by each person on whose behalf the statement is filed or his authorized representative. If the statement is signed on behalf of a person by his authorized representative other than an executive officer or general partner of the filing person, evidence of the representative's authority to sign on behalf of such person shall be filed with the statement, provided, however, that a power of attorney for this purpose which is already on file with the Commission may be incorporated by reference. The name and any title of each person who signs the statement shall be typed or printed beneath his signature. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. SEE ss.240.13d-7 for other parties for whom copies are to be sent. INDEX TO EXHIBITS Exhibit 1 Joint Filing Agreement, dated as of November 21, 2008, by and among Perceptive Advisors LLC and Joseph Edelman. Exhibit 2 Letter to Board of Directors of Penwest Pharmaceuticals Co., dated November 21, 2008. EXHIBIT 1 JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) promulgated under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them a Statement on Schedule 13D/A (including amendments thereto) with regard to the shares of Common Stock of Penwest Pharmaceuticals Co., and further agree that this Joint Filing Agreement be included as an Exhibit to such joint filings. In evidence thereof, the undersigned, being duly authorized, hereby execute this Agreement as of November 21, 2008. November 21, 2008 Date /s/ Perceptive Advisors LLC Signature Joseph Edelman/Managing Member Name/Title November 21, 2008 Date /s/ Joseph Edelman Signature Joseph Edelman Name/Title EXHIBIT 2 BOARD OF DIRECTORS OF PENWEST PHARMACEUTICALS CO. November 21, 2008 Penwest Pharmaceuticals CO Board of Directors Penwest Pharmaceuticals CO 39 Old Ridgebury Road Suite 11 Danbury, CT 06810-5120 Ladies and Gentlemen: We are writing to the Board today to express our concern over the direction management is taking the company. Perceptive Advisors LLC and its affiliates own approximately 21% of the common stock of Penwest Pharmaceuticals (Penwest). We believe Penwest finds itself at a crossroad. With the recent failure in Parkinson's, disappointing nalbuphine data, the lack of new patents, and the current market environment, Penwest's viability as a going concern has never looked so bleak. Perceptive strongly believes the Opana ER franchise has significant value but steps must be immediately taken to extract and maintain this value. Penwest continues to invest in high risk R&D projects, a decision we believe will lead to the destruction of the value of its primary asset. It is time for the Board to make difficult decisions. If you take seriously your fiduciary responsibility to protect the minority shareholders of Penwest, then your only course of action is a dramatic scale back of Penwest's current R&D programs and infrastructure. This will lead to the company's immediate profitability and allow the market to recognize the inherent value of the Opana ER asset. OPANA ER ROYALTY STREAM NPV Penwest's current market value is $13 million. Net of cash at September 30, 2008 the market value is negative. It is non-debatable that Penwest currently trades at a level far below the NPV of the Opana ER (and any line extension) royalty stream. Our analysis of the value under three different set of circumstances is laid out below. We note that we believe the worst case scenario to be highly unlikely. It assumes that Impax will launch at risk, no settlement between Endo and the generic filers will be reached, and Endo is unsuccessful securing approval for any line extensions. We believe Endo is at work on line extension products for Opana ER which, as you are aware, would be royalty bearing at the same terms to Penwest. Our base case scenario assumes Impax will not launch at risk, but would launch in late 2012 after they prevail in all litigation and appeals. The best case scenario assumes the Opana ER patents are upheld, additional patents are granted, or Endo is able to settle, keeping Opana ER on the market through 2018.
WORST CASE SCENARIO: IMPAX LAUNCHES AT RISK IN MID-2010 Q4'08 2009 H1 2010 H2 2010 ----- ---- ------- ------- Opana ER Sales (000) 45,000 209,000 125,000 30,000 Royalty Rate 11.0% 22.8% 22.0% 22.0% Royalties Payable (000) 4,950 47,652 27,500 6,600 TOTAL PRESENT VALUE (000) $56,652 Net Royalty after ENDP Payment 4,950 24,652 27,500 6,600 Discount Periods 0 1 1.5 2 PER DILUTED SHARE $1.59 Discount Rate 10% 10% 10% Present Value (000) $ 4,950 $ 22,411 $ 23,837 $ 5,455
BASE CASE SCENARIO: IMPAX LAUNCHES GENERIC IN LATE 2012 Q4'08 2009 2010 2011 2012 ----- ---- ---- ---- ---- Opana ER Sales (000) 45,000 209,000 250,000 300,000 350,000 Royalty Rate 11.0% 23.0% 23.2% 23.5% 23.7% Royalties Payable (000) 4,950 48,070 58,000 70,500 82,950 Total Present Value (000) $185,298 Net Royalty after ENDP Payment 4,950 25,070 58,000 70,500 82,950 Discount Periods 0 1 2 3 4 Per Diluted Share $5.20 Discount Rate 10% 10% 10% 10% Present Value (000) $ 4,950 $ 22,791 $ 47,934 $ 52,968 $ 56,656 BEST CASE SCENARIO: ADDITIONAL PATENTS GRANTED AND UPHELD Q4'08 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Opana ER Sales (000) 45,000 209,000 250,000 300,000 350,000 403,000 443,000 488,000 536,000 590,000 649,000 Royalty Rate 11.0% 23.0% 23.2% 23.5% 23.7% 23.9% 24.0% 24.1% 24.2% 24.2% 24.3% Royalties Payable (000) 4,950 48,070 58,000 70,500 82,950 96,317 106,320 117,608 129,712 142,780 157,707 Net Royalty after ENDP Payment 4,950 25,070 58,000 70,500 82,950 96,317 106,320 117,608 129,712 142,780 157,707 Discount Periods 0 1 2 3 4 5 6 7 8 9 10 Discount Rate 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Present Value (000) $ 4,950 $ 22,791 $ 47,934 $ 52,968 $ 56,656 $ 59,805 $ 60,015 $ 60,351 $ 60,512 $ 60,553 $ 60,803 Total Present Value (000) $547,337 Per Diluted Share $15.36
RESEARCH AND DEVELOPMENT HISTORY Penwest has an accumulated deficit of over $230 million. Aside from the approval of Opana ER, which was largely accomplished with the help of Endo, the company's history is an unfortunate progression of failed development programs. On both the generic and branded side, Penwest has failed to deliver on projects the company believed were promising. Bioequivalence programs for Ditropan XL, Glucophage XR, and Procardia XL all failed in the early part of this decade. After this string of generic failures, Penwest evidently made a decision to focus on branded drug development. For the most part the results were the same. Our review of the company's documents reveals well over 20 proprietary drug programs that either failed or were dropped after money was spent on formulation and/or clinical development work. Three notable failures included: 1) PW2101, an extended release version of metoprolol for the treatment of hypertension that was rejected by the FDA after a $22 million investment, 2) PW2132, a once daily extended release version of torsemide that was terminated after a $4 million investment based on the belief it would not be differentiated, and 3) PW4142, an extended release formulation of nalbuphine for the treatment of pain which has been in Penwest's pipeline for over five years and just recently failed to meet its primary endpoint in a Phase II study. Given this track record in both generic and branded drug development, we question why Penwest, with the Board's support, continues to believe that continued R&D investment is in the best interest of the company's shareholders. More specifically, the company is currently pursuing an even riskier drug development strategy than ever before. At this point, Penwest's primary R&D effort is a Phase I program of novel chemical entities for the treatment of mitochondrial diseases. We are concerned this effort is nothing more than a "hail mary" strategy for the company. We are unsure why the Board believes the company has the expertise to take the mitochondrial program forward when management has had such limited success on lower risk reformulation endeavors. Penwest spent almost $6 million on R&D in the third quarter, down slightly year over year but up 30% over the second quarter. With $23 million of cash in the bank, the company has less than one year of cash based on its current burn rate. While the company is at little risk of running out of cash, we believe running the company at this level of spend is a strategic error. First, the current market has no tolerance for companies operating with less than one year of cash. Penwest willingly and intentionally put themselves into this position and should have foreseen the consequences with respect to the stock price. Second, as we have argued previously, the spend is not only too high but it is wasteful. If management is allowed to continue at this pace we fear all the income from Opana ER will disappear into high risk R&D programs, which based on industry probabilities are likely to fail. Management's assurances that drugs will be partnered, new patents will be granted, spending will be curtailed, trials will be successful, and value will be unlocked have all gone unfulfilled. The company's credibility is likely damaged beyond repair. As Penwest's largest shareholder, we urge the Board to protect the substantial remaining value of the Opana franchise by returning it back to the shareholders. Our recommendation is to cease all development activity and turn Penwest into a virtual company. If these steps are taken, we believe that buyers will emerge for the Opana royalty at levels far above Penwest's current market value. Perceptive does not see any other course of action that will accomplish this end. We remind you that your fiduciary duty is to the shareholders of Penwest for which you are accountable. Yours Truly, Joe Edelman CEO Perceptive Advisors, LLC -----END PRIVACY-ENHANCED MESSAGE-----