t65260c_dfan14a.htm

Penwest Pharmaceuticals Co.

(NASDAQ: PPCO): The Case for Change

Tang Capital Partners, LP

Perceptive Life Sciences Master Fund Ltd.

May 2009

Disclaimer

In connection with Penwest Pharmaceutical Co.'s upcoming 2009 annual meeting of

shareholders (the "Annual Meeting"), Tang Capital Partners, LP ("Tang Capital") and

Perceptive Life Sciences Master Fund Ltd. ("Perceptive") have filed with the Securities and

Exchange Commission (the "SEC") a proxy statement (the "Tang Capital and Perceptive

Proxy Statement") and related materials for the solicitation of proxies from Penwest

shareholders for use at the Annual Meeting. Tang Capital and Perceptive, their director

nominees and certain of their affiliates are or may be deemed to be participants in the

solicitation of proxies with respect to the Annual Meeting. Information regarding Tang

Capital and Perceptive and their nominees and such participants is contained in the

Schedule 14A and related materials filed by Tang Capital and Perceptive with the SEC.

Penwest shareholders should read the Tang Capital and Perceptive Proxy Statement and

related materials filed with the SEC with respect to the Annual Meeting because they

contain important information. These materials are available free of charge at the SEC's

website at www.sec.gov.

We have not sought or obtained consent from any third party to use any statements or

information included in this presentation. Any such statements or information should not be

viewed as indicating the support of any third party.

We are not recommending the purchase or sale of any security. We reserve the right to

change any of our intentions or opinions expressed herein at any time and for any reason.

Certain matters addressed in this presentation are forward-looking statements that involve

certain risks and uncertainties. You should be aware that actual results could differ

materially from those contained in the forward-looking statements. We assume no obligation

to update any information, including forward-looking information, contained herein.

Executive Summary

• Tang Capital and Perceptive are the two largest shareholders of

Penwest

• Current leadership has failed to deliver value for shareholders

• Penwest’s corporate governance is seriously lacking and structured

to maintain status quo

• We have both the incentive and expertise to turn Penwest around

and do what is best for shareholders

• We are seeking your support by asking you to:

• Elect our three nominees to the board

• Vote FOR our proposed bylaw changes, which will require the board to

be more responsive and accountable to shareholders

• Vote FOR our shareholder resolution on the future direction of the

Company

Background on Proxy Contest

Having become frustrated with the Company’s actions and

obstructionist tactics, we are undertaking this proxy contest

only as a last resort

Our Interests Are Aligned with Yours

• Tang Capital and Perceptive:

• Own 41.5% of the Company’s stock

• Invested $45 million to obtain our position

We have one interest in mind: maximize the value of Penwest stock so that we

can maximize the return on our and your investment

• Penwest’s officers and directors1:

• Have invested virtually nothing in Penwest’s stock

• Have realized $2.2 million in profits from the sale of stock

they did not buy, but were given2

• Have collected $7.5 million in cash compensation Current leadership appears focused

on maintaining status quo so that it may continue to collect its generous compensation

1 Since July 1, 2003, the date on which insider trading records first became readily available 5

2 Stock obtained through the exercise of stock options and restricted stock grants

In Contrast to Current Leadership, We Have a

Track Record of Making Money for Our Investors

• Tang Capital and Perceptive both have proven track records

• This is not the case for Penwest

• Ms. Jennifer Good has been CEO since June 7, 2006

• Stock price performance: down 89%, versus down 9% for the NASDAQ Biotech Index

• Chairman’s performance has been no better

• Mr. Paul Freiman was President and CEO of Neurobiological Technologies, Inc.

(NASDAQ: NTII) from May 8, 1997 to December 31, 2008

• Stock price performance: down 97%, versus up 144% for the NASDAQ Biotech Index

PPCO Stock Price Performance

Stock Price ($)

25 20 15 10 5 0

Ms. Jennifer Good Appointed CEO Down 89%

1/3/2006 3/3/2006 5/3/2006 7/3/2006 9/3/2006 11/3/2006 1/3/2007

3/3/2007 5/3/2007 7/3/2007 9/3/2007 11/3/2007 1/3/2008 3/3/2008

5/3/2008 7/3/2008 9/3/2008 11/3/2008 1/3/2009 3/3/2009 5/3/2009

Date

What We Are Proposing and Why

Because:

• It is time Penwest is governed by individuals more focused on and

more capable of delivering positive returns for shareholders

• Penwest’s corporate governance is seriously lacking and structured to

maintain status quo

• We have a clear plan to maximize value for all shareholders

We are seeking your vote on:

• The election of our three nominees

• Two bylaw amendments that will require the board to be more responsive

and accountable to wishes of shareholders

• A shareholder resolution on the future direction of the Company

Proposal 1: Our Nominees

Kevin C. Tang

Mr. Tang is the founder and manager of Tang Capital, an investment fund

that invests in health care companies, and has an established record of

delivering positive returns for its investors. He has eighteen years of

experience evaluating biopharmaceutical companies in his current

capacity as portfolio manager and his prior capacity as a biotechnology

investment analyst. Prior to founding Tang Capital in August 2002, Mr.

Tang held various positions at Deutsche Banc Alex. Brown, Inc., an

investment banking firm, from 1993 to 2001, most recently serving as

Managing Director and head of the firm’s life sciences research group.

Mr. Tang also has considerable experience governing biopharmaceutical

companies as a board member and currently serves as a director of two

publicly traded companies, A.P. Pharma, Inc. (NASDAQ: APPA) and

Ardea Biosciences, Inc. (NASDAQ: RDEA). Mr. Tang received a B.S.

degree in Psychology from Duke University in 1989.

Joseph Edelman

Mr. Edelman is the founder and manager of Perceptive, an investment

fund that invests in life sciences companies. He has nineteen years of

experience evaluating biopharmaceutical companies in his current

capacity as portfolio manager and his prior capacity as a biotechnology

investment analyst. Prior to founding Perceptive in 1999, Mr. Edelman

was a Senior Analyst at Paramount Capital from 1994 to 1999 and was

the Senior Biotechnology Analyst at Prudential Securities from 1990 to

1994. Mr. Edelman received a B.A. degree in Psychology from the

University of California, San Diego in 1979, and an M.B.A. in Marketing

from New York University in 1989.

Andrew D. Levin, M.D., Ph.D.

Dr. Levin is a Principal at Tang Capital and has considerable expertise

in evaluating the technical aspects of drug discovery and development

programs. Prior to joining Tang Capital in April 2008, he served as a

Business Development Manager at Genzyme Corporation, a

pharmaceutical company, from July 2007 to April 2008. Dr. Levin

received a B.S.E. degree in Mechanical Engineering from Princeton

University in 1999, a Ph.D. in Bioengineering from the Massachusetts

Institute of Technology in 2005 and an M.D. from Harvard Medical

School in 2007.

Our Nominees Will Better Represent Your Interests

Our nominees have proven track records and deep experience

evaluating all aspects of biopharmaceutical businesses and

governing these businesses from the board

Proposals 2 and 3:

Our Governance Changes

Penwest Has a History of Ignoring Shareholders’ Interests

Penwest’s corporate governance is structured only to maintain

the status quo

The Company has a history of not only ignoring shareholder

interests, but, worse yet, actively suppressing shareholder input

to avoid accountability

Penwest Has a Staggered Board

• Penwest’s staggered board entrenches officers and directors

• With a staggered board, only a minority of directors, in this case three of

nine, stand for election each year

• Even with a vote of an overwhelming majority of shareholders, it is not

possible to replace a majority of the board until the second of two

annual shareholder meetings

• Proxy advisory firms universally frown on staggered boards

• Glass Lewis & Co. states, “Glass Lewis favors the repeal of staggered

boards and the annual election of directors. We believe staggered

boards are less accountable to shareholders than boards that are

elected annually. Furthermore, we feel the annual election of directors

encourages board members to focus on shareholder interests.”

• RiskMetrics Group states, “A classified board tips the balance of power

too much toward incumbent management at the price of potentially

ignoring shareholder interests.”

Penwest Reinstated Its Poison Pill

• In response to our call for change, Penwest reinstated its poison pill

to avoid accountability

• Prevents us from acquiring more stock or any other shareholder from

acquiring more than 15% of Penwest’s stock

• Again, proxy advisory firms frown on such provisions

• Glass Lewis states, “Poison pill plans generally are not in the best

interests of shareholders.”

• RiskMetrics Group, in its 2008 Proxy Report on Penwest specifically,

deemed the presence of the poison pill as a “negative governance

factor.”

Penwest Is Manipulating Its Board Size

• In response to our proxy, Penwest reduced the number of seats up

for election to further reduce shareholder influence

• Board took this action after the deadline for shareholder proposals

• Would reduce seats up for election at 2009 annual meeting to 2 of 8

(25%) from 3 of 9 (33%)

• We have been forced to attempt to reverse this egregious action in

court

Why We Are Proposing Changes to the Company’s Bylaws

• Current leadership’s blatant attempts to further entrench itself and

insulate itself from shareholder influence underscore the need for

strong, independent, investor representation on the board

• Unfortunately, as shareholders, we collectively are unable to

eliminate the staggered board or the poison pill

• Paradoxically, these actions only can be taken with the approval of the

board itself

The following two proposed changes to the Company’s bylaws,

however, can be adopted with a supermajority vote of the shareholders

Proposal 2:

Minimizing Delay Tactics

• We are proposing a bylaw amendment that will require Penwest to

hold its annual meeting on April 30th of each year

• As it currently stands, Penwest can:

• Determine the date of the annual meeting with few restrictions

• Withhold the announcement of the annual meeting date until very late in

the process

• Move the date of the annual meeting

Our proposed bylaw amendment will ensure that shareholders’

interests are heard and heard promptly

Proposal 3:

Ensuring Directors You Elect Are Heard

• We are proposing a bylaw amendment that will require certain

actions of the board to obtain approval of either 75% or 81% of the

board

• Because we will represent only 25% or 33% of the board, we run

risk of being shut out of major board decisions

• Such decisions could be made unilaterally by incumbent majority

• Risk is a certainty based on board’s behavior to date

Our proposed bylaw amendment will require the agreement of at

least one of our nominees in major board decisions, ensuring

that shareholder interests are represented

Proposal 4:

Our Shareholder Resolution

Penwest Has One Principal Asset

• Penwest has one principal asset: the royalty income stream on Opana ER

that it receives from licensee Endo Pharmaceuticals

• ~$19 million-$25 million this year

• Royalty rate ~11%

• ~$45 million-$55 million next year

• Royalty rate ~22%

• This income stream is entirely passive to Penwest and solely driven by

the sales performance of Endo

Opana ER Weekly Total Rx Since Launch

Weekly Total Prescriptions

14000

12000

10000

8000

6000

4000

2000

Annual Run-Rate >$200 Million

7/28/06

10/28/06

1/28/07

4/28/07

7/28/07

10/28/07

1/28/08

4/28/08

7/28/08

10/28/08

1/28/09

4/28/09

Date

Penwest Spends Money Wastefully with No

Regard for Shareholder Return

Penwest’s spending of the cash flow generated by the Opana ER

royalty income stream is wasteful and will provide a

dramatically lower return than simply retaining funds for

ultimate distribution to shareholders

Overhead Out of Control

• Overhead:

• Webster definition: business expenses (as rent, insurance or heating)

not chargeable to a particular part of the work or product, i.e., money

spent on activities that will result in no return to shareholders

• 2009 overhead guidance: $14 million-$16 million

• ~70% of this year’s royalty income

• ~25% of total market capitalization

• $150,000 for its proxy solicitation firm versus our $25,000 for the

identical services

Sole R&D Program Lacks Foundation

. Current leadership is 0/4 in new drug development

. Nalbuphine ER

. PW4153

. PW4110

. Torsemide ER

. Penwest’s A0001 lacks scientific and commercial foundation

. Nothing more than a metabolite of vitamin E that has no patent protection

. Is many years behind a competitor, Santhera Pharmaceuticals,

targeting the same, limited market (only a few thousand patients)

. Is targeting an indication for which there are no validated surrogate

markers of efficacy, necessitating a very long, expensive and uncertain

development path

For many months now, Penwest has refused to address our

concerns regarding A0001

Our Shareholder Resolution on the Future

Direction of the Company

• NPV of Opana ER royalty income stream alone far exceeds market

capitalization of the Company, which stands at $65 million

• Only 1.2-1.4 times next year’s estimated royalty income

• Because of Penwest’s wasteful spending, its stock is trading at a

substantial discount to NPV of this income stream

• For these reasons, we are seeking your vote on a resolution of the

shareholders that:

“The Company take prompt and thoughtful action to preserve

shareholder value by immediately winding down substantially

all of the Company’s operations so that the full value of the

Opana ER royalty income stream will be retained for the benefit

of shareholders.”

Under Our Plan, Penwest’s NOLs Are

Secure

• Despite what Penwest has stated, NOLs would NOT be forfeited by

pursuing our plan

• Section 382 of Internal Revenue Code disallows use of NOLs if, within

two years after change of control, a corporation does not continue as a

business enterprise

• BUT, under Treasury Regulation §1.368-1, a corporation continues as a

business enterprise if it continues to use significant portion of business

assets that existed at time of change of control

• Under our plan, Penwest would continue to use its most significant

business assets, namely the intellectual property and license agreement

that result in the Opana ER royalty income stream

Therefore, Penwest will continue as a business enterprise for

purposes of Section 382, and its NOLs will not be forfeited

We Have Specific Experience Implementing Our Plan

• Tang Capital has been a major shareholder of Ardea Biosciences,

Inc. (NASDAQ: RDEA) for six years

• Mr. Tang has been a director of Ardea for same period of time

• In 2004, Ardea decided it was in best interest of shareholders to

wind down its operations

• Preserve cash

• Return to shareholders or

• Redeploy into another opportunity acceptable to majority of

shareholders

• Mr. Tang, as lead director, supervised wind-down

• Swift and effective

• Cash expenses brought to bare minimum (~$1.5 million per year)

• NO forfeiture of NOLs

We Have Specific Experience Implementing Our Plan (cont.)

• In December 2006, Mr. Tang supervised redeployment of

Ardea’s capital

• Stock up 265% from where it traded when wind-down announced,

versus down 10% for the NASDAQ Biotech Index

RDEA Stock Price Performance

Stock Price ($)

Wind-down Implemented

Redeployment of Capital

Up 265%

1/5/2004 4/5/2004 7/5/2004 10/5/2004 1/5/2005 4/5/2005 7/5/2005 10/5/2005

1/5/2006 4/5/2006 7/5/2006 10/5/2006 1/5/2007 4/5/2007 7/5/2007 10/5/2007

1/5/2008 4/5/2008 7/5/2008 10/5/2008 1/5/2009 4/5/2009

Date

Why It Is Critical that You Vote on the Shareholder Resolution

Because Penwest’s board is staggered, we will not obtain a

majority of the board even with your overwhelming support

Therefore, it is critical that you cast your vote on this matter so

that the board, through a mechanism that is quantitative, clear

and indisputable, is informed about what the shareholders

consider to be the best direction for the future of the Company

Summary

• Tang Capital and Perceptive are the two largest shareholders of Penwest

• Current leadership has failed to deliver value for shareholders

• Penwest’s corporate governance is seriously lacking and structured

to maintain status quo

• We have both the incentive and expertise to turn Penwest around

and do what is best for shareholders

• We are seeking your support by asking you to:

• Elect our three nominees to the board

• Vote FOR our proposed bylaw changes, which will require the board to

be more responsive and accountable to shareholders

• Vote FOR our shareholder resolution on the future direction of the

Company

Thank you for your support!

Contact Information

The Altman Group

1200 Wall Street West, 3rd Floor

Lyndhurst, NJ 07071

Shareholders call toll free: (866) 620-7619

Banks and brokers call collect: (201) 806-2214

Fax: (201) 460-0050

For more information, please visit:


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