May 17, 2010

KEVIN TANG AND JOE EDELMAN ARE TRYING TO TAKE CONTROL OF PENWEST

PROXY FIGHT PART TWO

Dear Fellow Penwest Shareholder:

Over the past year, Penwest’s Board of Directors and management team have been successfully executing our focused business plan and creating value for all shareholders. We are encouraged by our achievements to date and the substantial increase in Penwest’s share price.

At the same time, as you are likely aware, Kevin Tang of Tang Capital Management, L.P. and Joe Edelman of Perceptive Life Sciences Master Fund Ltd. have once again launched a proxy contest, this time to elect three directors of their choosing to Penwest’s Board at our Annual Meeting of Shareholders on June 22, 2010. If they win, they will take full control of your Company’s Board and with it Penwest’s strategic direction.

At last year’s Annual Meeting, Messrs. Tang and Edelman were elected to the Board. Since their election, the Board has worked cooperatively with them and considered carefully their input in its deliberations and decision making. With these major shareholders serving as directors, we believe that Penwest’s eight-member Board has a healthy, productive system of checks and balances in place and represents the perspectives of all shareholders. In fact, during this period the Board approved additional reductions in operating expenses and announced its intention to declare a special cash dividend later this year.

Despite all of this, Messrs. Tang and Edelman are once again launching a proxy contest that, if successful, would give them full control of the Board. They are doing so after repeated efforts on our part to reach a compromise with them and avoid another costly and disruptive proxy fight.

Shareholders must ask themselves

• With a Board composed of Messrs. Tang, Edelman and their three other hand-picked nominees, giving them voting control, who would ensure that the Board acts in the best interests of all Penwest shareholders?

• Wouldn’t your interests be better represented by a diverse Board of independent directors rather than a Board controlled by the agendas of these two people? Penwest Pharmaceuticals Co. 2981 Route 22 Patterson, New York 1256

It is perplexing that Messrs. Tang and Edelman are again taking the Company down a path that will waste shareholders’ money, distract management and disrupt the progress we are making. We can only conclude that this is not about representing the best interests of all of our shareholders, but is instead about taking control of Penwest for themselves.

Take a look at Messrs. Tang and Edelman’s actions since joining the Board. Upon becoming a Penwest director last summer, Mr. Tang immediately proposed to the Board that he be elected CEO of the Company. In the Board’s vote on this, his self-serving proposal was defeated, with only two directors – Messrs. Tang and Edelman – voting in favor. Moreover, during their year as Board members, neither Mr. Tang nor Mr. Edelman has offered an alternative strategic plan for the Company – beyond more cost reductions, with seemingly little thought given to whether the cuts make business sense.

Cost cutting for the sake of cost cutting, as espoused by Messrs. Tang and Edelman, does not build shareholder value. We, too, believe in cutting costs, and we have done so. But we believe that the way to build shareholder value is through a combination of responsible cost containment and revenue growth. We are executing on both. In our view, the dissidents’ onedimensional approach ignores revenue growth as an important driver of value for shareholders.

WHICH DIRECTORS DO YOU WANT CONTROLLING PENWEST AND YOUR INVESTMENT?

Messrs. Tang and Edelman are seeking to stack the Board with candidates with ties to Mr. Tang and take full control of the Company, replacing our three experienced, highly-qualified director nominees including our independent, non-executive Chairman Paul Freiman, President and CEO Jennifer Good and Christophe Bianchi, M.D., Executive Vice President and Head of Commercial Operations at Millennium: The Takeda Oncology Company. Dr. Bianchi was appointed to the Board in 2007, after we conducted, with the help of a professional search firm, a deliberate and thorough review to identify a director who would bring to the Board his level of commercial expertise.

And in whose hands would the dissidents place the future of the Company?

• A 29-year-old accountant with no public company board experience who works for Mr. Tang;

• A hedge fund manager with college ties to Mr. Tang who likewise has never served as a public company director; and

• An acquaintance of Mr. Tang whose background is primarily in the medical technology field.

Penwest’s existing Board – with Messrs. Tang and Edelman – includes members with medical backgrounds, drug development expertise and experience in regulatory affairs and commercial operations, members who have worked in senior management at companies engaged in drug development, members who have served as board members of public companies engaged in drug development and members with backgrounds in the financial industry, as well as our two largest shareholders

If their three nominees are elected, the Board would be controlled primarily by hedge fund managers and an accountant for Mr. Tang’s hedge fund. The system of checks and balances that exists today – and is so critical to the governance of public companies – would be in serious jeopardy.

There are important decisions that need to be made and actions that need to be taken to continue Penwest’s progress. This is not the time to change Penwest’s Board or management team and risk interrupting the Company’s momentum. Re-electing the Board’s nominees would leave both Mr. Tang and Mr. Edelman on the Board, each with a voice equal to that of the other elected independent directors, preserve the checks and balances and ensure that Messrs. Tang and Edelman do not control the Company’s future.

Your Board strongly urges all Penwest shareholders to reject the three Tang/Edelman nominees and to vote “FOR” the re-election of each of the Company’s three director nominees on the WHITE proxy card.

PLEASE USE THE WHITE PROXY CARD TO VOTE TODAY – BY TELEPHONE, BY INTERNET OR BY SIGNING, DATING AND RETURNING THE ENCLOSED WHITE PROXY CARD. YOUR BOARD URGES YOU NOT TO SIGN OR RETURN ANY GOLD OR OTHER PROXY CARD SENT TO YOU BY TANG CAPITAL OR PERCEPTIVE.

We are confident in the Company’s future and are energized by the progress the Company is making. We ask for your continued support as we pursue the right path for Penwest to build value for all of our shareholders.

If you have any questions, please don’t hesitate to contact us at (845) 878-8400 or (877) 736- 9378.

Sincerely,

Paul E. Freiman
Chairman

Jennifer L. Good
President and Chief Executive Officer