<PAGE>
                                                                    EXHIBIT 10.4

                            SGX PHARMACEUTICALS, INC.
                        2005 EMPLOYEE STOCK PURCHASE PLAN


          INITIALLY ADOPTED BY THE BOARD OF DIRECTORS: AUGUST 30, 2005
              INITIALLY APPROVED BY STOCKHOLDERS: OCTOBER 31, 2005


1.    PURPOSE.

      (a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Related Corporations may be given an
opportunity to purchase shares of the Common Stock of the Company.

      (b) The Company, by means of the Plan, seeks to secure and retain the
services of current and new Employees and to provide incentives for such persons
to exert maximum efforts for the success of the Company and its Related
Corporations.

      (c) The Company intends that the Purchase Rights be considered options
issued under an Employee Stock Purchase Plan.

2.    DEFINITIONS.

      As used in the Plan and any Offering, unless otherwise specified, the
following terms have the meanings set forth below:

      (a) "BOARD" means the Board of Directors of the Company.

      (b) "CODE" means the Internal Revenue Code of 1986, as amended.

      (c) "COMMITTEE" means a committee appointed by the Board in accordance
with Section 3(c) of the Plan.

      (d) "COMMON STOCK" means the common stock of the Company.

      (e) "COMPANY" means SGX Pharmaceuticals, Inc., a Delaware corporation.

      (f) "CONTRIBUTIONS" means the payroll deductions and other additional
payments that a Participant contributes to fund the exercise of a Purchase
Right. A Participant may make payments not through payroll deductions only if
specifically provided for in the Offering, and then only if the Participant has
not already had the maximum permitted amount withheld through payroll deductions
during the Offering.

      (g) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i) a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company;


                                     - 1 -
<PAGE>
            (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;

            (iii) a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or

            (iv) a merger, consolidation or similar transaction following which
the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation or
similar transaction into other property, whether in the form of securities, cash
or otherwise.

      (h) "DIRECTOR" means a member of the Board.

      (i) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering, provided
that such Employee also meets the requirements for eligibility to participate
set forth in the Plan.

      (j) "EMPLOYEE" means any person, including Officers and Directors, who is
employed for purposes of Section 423(b)(4) of the Code by the Company or a
Related Corporation. Neither service as a Director nor payment of a director's
fee shall be sufficient to make an individual an Employee of the Company or a
Related Corporation.

      (k) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants Purchase
Rights intended to be options issued under an "employee stock purchase plan," as
that term is defined in Section 423(b) of the Code.

      (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      (m) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of the security, unless otherwise determined by the Board,
shall be the closing sales price (rounded up where necessary to the nearest
whole cent) for such security (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the relevant security of the Company) on the Trading Day
that is immediately prior to the relevant determination date, as reported in The
Wall Street Journal or such other source as the Board deems reliable. Unless
otherwise provided by the Board, if there is no closing sales price (or closing
bid if no sales were reported) for the security on the date in question, then
the Fair Market Value shall be the closing selling price (or closing bid if no
sales were reported) on the last preceding date for which such quotation exists.

      (n) "IPO DATE" means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.

      (o) "OFFERING" means the grant of Purchase Rights to purchase shares of
Common Stock under the Plan to Eligible Employees.


                                       2.
<PAGE>
      (p) "OFFERING DATE" means a date selected by the Board for an Offering to
commence.

      (q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (r) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Purchase Right granted pursuant to the Plan.

      (s) "PLAN" means this SGX Pharmaceuticals, Inc. 2005 Employee Stock
Purchase Plan.

      (t) "PURCHASE DATE" means one or more dates during an Offering established
by the Board on which Purchase Rights shall be exercised and as of which
purchases of shares of Common Stock shall be carried out in accordance with such
Offering.

      (u) "PURCHASE PERIOD" means a period of time specified within an Offering
beginning on the Offering Date or on the next day following a Purchase Date
within an Offering and ending on a Purchase Date. An Offering may consist of one
or more Purchase Periods.

      (v) "PURCHASE RIGHT" means an option to purchase shares of Common Stock
granted pursuant to the Plan.

      (w) "RELATED CORPORATION" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (x) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (y) "TRADING DAY" means any day on which the exchange(s) or market(s) on
which shares of Common Stock are listed, whether it be an established stock
exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or otherwise,
is open for trading.

3.    ADMINISTRATION.

      (a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in Section 3(c). Whether or
not the Board has delegated administration, the Board shall have the final power
to determine all questions of policy and expediency that may arise in the
administration of the Plan.

      (b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine when and how Purchase Rights to purchase shares of
Common Stock shall be granted and the provisions of each Offering of such
Purchase Rights (which need not be identical).


                                       3.
<PAGE>
            (ii) To designate from time to time which Related Corporations of
the Company shall be eligible to participate in the Plan.

            (iii) To construe and interpret the Plan and Purchase Rights, and to
establish, amend and revoke rules and regulations for the administration of the
Plan. The Board, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.

            (iv) To amend the Plan as provided in Section 15.

            (v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Related Corporations and to carry out the intent that the Plan be treated as
an Employee Stock Purchase Plan.

            (vi) To adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the Plan by Employees who are foreign
nationals or employed outside the United States.

      (c) The Board may delegate administration of the Plan to a Committee of
the Board composed of one (1) or more members of the Board. If administration of
the Plan is delegated to a Committee, the Committee shall have, in connection
with the administration of the Plan, the powers theretofore possessed by the
Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board some or all
of the powers previously delegated. If administration is delegated to a
Committee, references to the Board in this Plan and in the Offering document
shall thereafter be deemed to be to the Board or the Committee, as the case may
be.

      (d) All determinations, interpretations and constructions made by the
Board in good faith shall not be subject to review by any person and shall be
final, binding and conclusive on all persons.

4.    SHARES OF COMMON STOCK SUBJECT TO THE PLAN.


      Subject to the provisions of Section 14(a) relating to adjustments upon
changes in Common Stock, the stock that may be sold pursuant to Purchase Rights
granted under the Plan shall not exceed in the aggregate three hundred
seventy-five thousand (375,000) shares of Common Stock, plus an annual increase
to be added on the first day of each Company fiscal year, beginning in 2007 and
ending in (and including) 2015, equal to the lesser of: (i) one percent (1%) of
the total number of shares of Common Stock outstanding on December 31st of the
preceding year (rounded to the nearest whole share), (ii) one hundred fifty
thousand (150,000) shares of Common Stock, or (iii) an amount determined by the
Board or a Committee.


5.    GRANT OF PURCHASE RIGHTS; OFFERING.

      (a) The Board may from time to time grant or provide for the grant of
Purchase Rights to purchase shares of Common Stock under the Plan to Eligible
Employees in an Offering (consisting of one or more Purchase Periods) on an
Offering Date or Offering Dates selected by


                                       4.
<PAGE>
the Board. Each Offering shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, which shall comply with the
requirement of Section 423(b)(5) of the Code that all Employees granted Purchase
Rights shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in Sections 6 through 9, inclusive.

      (b) If a Participant has more than one Purchase Right outstanding under
the Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder: (i) each agreement or notice delivered by that Participant
shall be deemed to apply to all of his or her Purchase Rights under the Plan,
and (ii) a Purchase Right with a lower exercise price (or an earlier-granted
Purchase Right, if different Purchase Rights have identical exercise prices)
shall be exercised to the fullest possible extent before a Purchase Right with a
higher exercise price (or a later-granted Purchase Right if different Purchase
Rights have identical exercise prices) shall be exercised.

6.    ELIGIBILITY.

      (a) Purchase Rights may be granted only to Employees of the Company or, as
the Board may designate as provided in Section 3(b), to Employees of a Related
Corporation. Except as provided in Section 6(b), an Employee shall not be
eligible to be granted Purchase Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the Related
Corporation, as the case may be, for such continuous period preceding such
Offering Date as the Board may require, but in no event shall the required
period of continuous employment be greater than two (2) years. In addition, the
Board may provide that no Employee shall be eligible to be granted Purchase
Rights under the Plan unless, on the Offering Date, such Employee's customary
employment with the Company or the Related Corporation is more than twenty (20)
hours per week and/or more than five (5) months per calendar year.

      (b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee shall, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Purchase Right under
that Offering, which Purchase Right shall thereafter be deemed to be a part of
that Offering. Such Purchase Right shall have the same characteristics as any
Purchase Rights originally granted under that Offering, as described herein,
except that:

            (i) the date on which such Purchase Right is granted shall be the
"Offering Date" of such Purchase Right for all purposes, including determination
of the exercise price of such Purchase Right;

            (ii) the period of the Offering with respect to such Purchase Right
shall begin on its Offering Date and end coincident with the end of such
Offering; and


                                       5.
<PAGE>
            (iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she shall not receive any Purchase Right under that Offering.

      (c) No Employee shall be eligible for the grant of any Purchase Rights
under the Plan if, immediately after any such Purchase Rights are granted, such
Employee owns stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any Related
Corporation. For purposes of this Section 6(c), the rules of Section 424(d) of
the Code shall apply in determining the stock ownership of any Employee, and
stock which such Employee may purchase under all outstanding Purchase Rights and
options shall be treated as stock owned by such Employee.

      (d) As specified by Section 423(b)(8) of the Code, an Eligible Employee
may be granted Purchase Rights under the Plan only if such Purchase Rights,
together with any other rights granted under all Employee Stock Purchase Plans
of the Company and any Related Corporations, do not permit such Eligible
Employee's rights to purchase stock of the Company or any Related Corporation to
accrue at a rate which exceeds twenty five thousand dollars ($25,000) of Fair
Market Value of such stock (determined at the time such rights are granted, and
which, with respect to the Plan, shall be determined as of their respective
Offering Dates) for each calendar year in which such rights are outstanding at
any time.

      (e) Officers of the Company and any designated Related Corporation, if
they are otherwise Eligible Employees, shall be eligible to participate in
Offerings under the Plan. Notwithstanding the foregoing, the Board may provide
in an Offering that Employees who are highly compensated Employees within the
meaning of Section 423(b)(4)(D) of the Code shall not be eligible to
participate.

7.    PURCHASE RIGHTS; PURCHASE PRICE.

      (a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted a Purchase Right to purchase up to that
number of shares of Common Stock purchasable either with a percentage or with a
maximum dollar amount, as designated by the Board, but in either case not
exceeding fifteen percent (15%), of such Employee's Earnings (as defined by the
Board in each Offering) during the period that begins on the Offering Date (or
such later date as the Board determines for a particular Offering) and ends on
the date stated in the Offering, which date shall be no later than the end of
the Offering.

      (b) The Board shall establish one (1) or more Purchase Dates during an
Offering as of which Purchase Rights granted pursuant to that Offering shall be
exercised and purchases of shares of Common Stock shall be carried out in
accordance with such Offering.

      (c) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of Common Stock that may be purchased by any
Participant on any Purchase Date during such Offering. In connection with each
Offering made under the Plan, the Board may specify a maximum


                                       6.
<PAGE>
aggregate number of shares of Common Stock that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate number of shares of Common Stock that may be purchased by all
Participants on any Purchase Date under the Offering. If the aggregate purchase
of shares of Common Stock issuable upon exercise of Purchase Rights granted
under the Offering would exceed any such maximum aggregate number, then, in the
absence of any Board action otherwise, a pro rata allocation of the shares of
Common Stock available shall be made in as nearly a uniform manner as shall be
practicable and equitable.

      (d) The purchase price of shares of Common Stock acquired pursuant to
Purchase Rights shall be not less than the lesser of:

            (i) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the shares of Common Stock on the Offering Date; or

            (ii) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the shares of Common Stock on the applicable Purchase Date.

8.    PARTICIPATION; WITHDRAWAL; TERMINATION.

      (a) A Participant may elect to authorize payroll deductions pursuant to an
Offering under the Plan by completing and delivering to the Company, within the
time specified in the Offering, an enrollment form (in such form as the Company
may provide). Each such enrollment form shall authorize an amount of
Contributions expressed as a percentage of the submitting Participant's Earnings
(as defined in each Offering) during the Offering (not to exceed the maximum
percentage specified by the Board). Each Participant's Contributions shall
remain the property of the Participant at all times prior to the purchase of
Common Stock, but such Contributions may be commingled with the assets of the
Company and used for general corporate purposes except where applicable law
requires that Contributions be deposited with an independent third party. To the
extent provided in the Offering, a Participant may begin making Contributions
after the beginning of the Offering. To the extent provided in the Offering, a
Participant may thereafter reduce (including to zero) or increase his or her
Contributions. To the extent specifically provided in the Offering, in addition
to making Contributions by payroll deductions, a Participant may make
Contributions through the payment by cash or check prior to each Purchase Date
of the Offering.

      (b) During an Offering, a Participant may cease making Contributions and
withdraw from the Offering by delivering to the Company a notice of withdrawal
in such form as the Company may provide. Such withdrawal may be elected at any
time prior to the end of the Offering, except as provided otherwise in the
Offering. Upon such withdrawal from the Offering by a Participant, the Company
shall distribute to such Participant all of his or her accumulated Contributions
(reduced to the extent, if any, such Contributions have been used to acquire
shares of Common Stock for the Participant) under the Offering, and such
Participant's Purchase Right in that Offering shall thereupon terminate. A
Participant's withdrawal from an Offering shall have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan,
but such Participant shall be required to deliver a new enrollment form in order
to participate in subsequent Offerings.


                                       7.
<PAGE>
      (c) Purchase Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon a Participant ceasing to be an Employee for any
reason or for no reason (subject to any post-employment participation period
required by law) or other lack of eligibility. The Company shall distribute to
such terminated or otherwise ineligible Employee all of his or her accumulated
Contributions (reduced to the extent, if any, such Contributions have been used
to acquire shares of Common Stock for the terminated or otherwise ineligible
Employee) under the Offering.

      (d) Purchase Rights shall not be transferable by a Participant otherwise
than by will, the laws of descent and distribution, or a beneficiary designation
as provided in Section 13. During a Participant's lifetime, Purchase Rights
shall be exercisable only by such Participant.

      (e) Unless otherwise specified in an Offering, the Company shall have no
obligation to pay interest on Contributions.

9.    EXERCISE.

      (a) On each Purchase Date during an Offering, each Participant's
accumulated Contributions shall be applied to the purchase of shares of Common
Stock up to the maximum number of shares of Common Stock permitted pursuant to
the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. No fractional shares shall be issued upon the
exercise of Purchase Rights unless specifically provided for in the Offering.

      (b) If any amount of accumulated Contributions remains in a Participant's
account after the purchase of shares of Common Stock and such remaining amount
is less than the amount required to purchase one share of Common Stock on the
final Purchase Date of an Offering, then such remaining amount shall be held in
such Participant's account for the purchase of shares of Common Stock under the
next Offering under the Plan, unless such Participant withdraws from such next
Offering, as provided in Section 8(b), or is not eligible to participate in such
Offering, as provided in Section 6, in which case such amount shall be
distributed to such Participant after the final Purchase Date, without interest.
If the amount of Contributions remaining in a Participant's account after the
purchase of shares of Common Stock is at least equal to the amount required to
purchase one (1) whole share of Common Stock on the final Purchase Date of the
Offering, then such remaining amount shall be distributed in full to such
Participant at the end of the Offering.

      (c) No Purchase Rights may be exercised to any extent unless the shares of
Common Stock to be issued upon such exercise under the Plan are covered by an
effective registration statement pursuant to the Securities Act and the Plan is
in material compliance with all laws applicable to the Plan. If on a Purchase
Date during any Offering hereunder the shares of Common Stock are not so
registered or the Plan is not in such compliance, no Purchase Rights or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the shares of Common Stock are subject to such an effective
registration statement and the Plan is in such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If, on the Purchase Date under any Offering hereunder, as delayed to the
maximum extent permissible, the shares of Common Stock are not registered and
the Plan is not


                                       8.
<PAGE>
in such compliance, no Purchase Rights or any Offering shall be exercised and
all Contributions accumulated during the Offering (reduced to the extent, if
any, such Contributions have been used to acquire shares of Common Stock) shall
be distributed to the Participants.

10.   COVENANTS OF THE COMPANY.

      The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of Common Stock upon
exercise of the Purchase Rights. If, after commercially reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority that counsel for the Company deems necessary for the lawful issuance
and sale of shares of Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell shares of Common Stock upon
exercise of such Purchase Rights unless and until such authority is obtained.

11.   USE OF PROCEEDS FROM SHARES OF COMMON STOCK.

      Proceeds from the sale of shares of Common Stock pursuant to Purchase
Rights shall constitute general funds of the Company.

12.   RIGHTS AS A STOCKHOLDER.

      A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, shares of Common Stock subject to
Purchase Rights unless and until the Participant's shares of Common Stock
acquired upon exercise of Purchase Rights are recorded in the books of the
Company (or its transfer agent).

13.   DESIGNATION OF BENEFICIARY.

      (a) A Participant may file a written designation of a beneficiary who is
to receive any shares of Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to the Participant of
such shares of Common Stock or cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
during an Offering. Any such designation shall be on a form provided by or
otherwise acceptable to the Company.

      (b) The Participant may change such designation of beneficiary at any time
by written notice to the Company. In the event of the death of a Participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such Participant's death, the Company shall deliver such shares
of Common Stock and/or cash to the executor or administrator of the estate of
the Participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its sole discretion, may deliver
such shares of Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.


                                       9.
<PAGE>
14.   ADJUSTMENTS UPON CHANGES IN SECURITIES; CORPORATE TRANSACTIONS.

      (a) If any change is made in the shares of Common Stock, subject to the
Plan, or subject to any Purchase Right, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan shall be appropriately adjusted in the
type(s), class(es) and maximum number of shares of Common Stock subject to the
Plan pursuant to Section 4, and the outstanding Purchase Rights shall be
appropriately adjusted in the type(s), class(es), number of shares and purchase
limits of such outstanding Purchase Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.
(Notwithstanding the foregoing, the conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")

      (b) In the event of a Corporate Transaction, then: (i) any surviving or
acquiring corporation may continue or assume Purchase Rights outstanding under
the Plan or may substitute similar rights (including a right to acquire the same
consideration paid to stockholders in the Corporate Transaction) for those
outstanding under the Plan, or (ii) if any surviving or acquiring corporation
does not continue or assume such Purchase Rights or does not substitute similar
rights for Purchase Rights outstanding under the Plan, then, the Participants'
accumulated Contributions shall be used to purchase shares of Common Stock
within ten (10) business days prior to the Corporate Transaction under the
ongoing Offering, and the Participants' Purchase Rights under the ongoing
Offering shall terminate immediately after such purchase.

15.   AMENDMENT OF THE PLAN.

      (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 14 relating to adjustments upon changes
in securities and except as to amendments solely to benefit the administration
of the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Related Corporation, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary for the Plan to satisfy the requirements of Section 423 of the Code
or other applicable laws or regulations.

      (b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
or to bring the Plan and/or Purchase Rights into compliance therewith.

      (c) The rights and obligations under any Purchase Rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan except:
(i) with the consent of the person to whom such Purchase Rights were granted, or
(ii) as necessary to comply with any laws or governmental regulations
(including, without limitation, the provisions of the Code and the regulations
promulgated thereunder relating to Employee Stock Purchase Plans).


                                      10.
<PAGE>
16.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares of Common Stock reserved for issuance under the Plan, as increased
and/or adjusted from time to time, have been issued under the terms of the Plan.
No Purchase Rights may be granted under the Plan while the Plan is suspended or
after it is terminated.

      (b) Any benefits, privileges, entitlements and obligations under any
Purchase Rights while the Plan is in effect shall not be impaired by suspension
or termination of the Plan except (i) as expressly provided in the Plan or with
the consent of the person to whom such Purchase Rights were granted, (ii) as
necessary to comply with any laws, regulations, or listing requirements, or
(iii) as necessary to ensure that the Plan and/or Purchase Rights comply with
the requirements of Section 423 of the Code.

17.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective on the IPO Date, but no Purchase Rights
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted by the Board.

18.   MISCELLANEOUS PROVISIONS.

      (a) The Plan and Offering do not constitute an employment contract.
Nothing in the Plan or in the Offering shall in any way alter the at will nature
of a Participant's employment or be deemed to create in any way whatsoever any
obligation on the part of any Participant to continue in the employ of the
Company or a Related Corporation, or on the part of the Company or a Related
Corporation to continue the employment of a Participant.

      (b) The provisions of the Plan shall be governed by the law of the State
of California without resort to that state's conflicts of laws rules.


                                      11.
<PAGE>
                            SGX PHARMACEUTICALS, INC.

                        2005 EMPLOYEE STOCK PURCHASE PLAN
                                    OFFERING

              ADOPTED BY THE BOARD OF DIRECTORS: AUGUST 30, 2005


      In this document, capitalized terms not otherwise defined shall have
the same definitions of such terms as in the SGX Pharmaceuticals, Inc. 2005
Employee Stock Purchase Plan.

1.    GRANT; OFFERING DATE.

      (a) The Board hereby authorizes a series of Offerings pursuant to the
terms of this Offering document.

      (b) The first Offering hereunder (the "Initial Offering") shall begin on
the closing date of the initial public offering of the Company's Common Stock
under a registration statement declared effective under the Securities Act (the
"IPO Date") and shall end approximately 24 months following IPO Date, unless
terminated earlier as provided below. After the Initial Offering, an additional
new Offering shall begin on the day after the first Purchase Date of the
immediately preceding Offering. The first day of an Offering is that Offering's
"Offering Date." Except as provided below, each Offering shall be approximately
twenty-four (24) months in duration, with four (4) Purchase Periods which shall
be six (6) months in length, except for the first and second Purchase Periods of
the Initial Offering which may be longer or shorter and shall be approximately
six (6) months in length. Except as provided below, a Purchase Date is the last
day of a Purchase Period or of an Offering, as the case may be. The Initial
Offering shall consist of four (4) Purchase Periods with the first Purchase
Period of the Initial Offering ending approximately 6 months following IPO date
and the second Purchase Period of the Initial Offering ending approximately 12
months following the IPO date.

      (c) Notwithstanding the foregoing: (i) if any Offering Date falls on a day
that is not a Trading Day, then such Offering Date shall instead fall on the
next subsequent Trading Day, and (ii) if any Purchase Date falls on a day that
is not a Trading Day, then such Purchase Date shall instead fall on the
immediately preceding Trading Day.

      (d) Prior to the commencement of any Offering, the Board may change any or
all terms of such Offering and any subsequent Offerings. The granting of
Purchase Rights pursuant to each Offering hereunder shall occur on each
respective Offering Date unless prior to such date (i) the Board determines that
such Offering shall not occur, or (ii) no shares of Common Stock remain
available for issuance under the Plan in connection with the Offering.

      (e) Notwithstanding anything in this Section 1 to the contrary, if on the
first day of a Purchase Period during an Offering the Fair Market Value of the
shares of Common Stock is less


                                       1.
<PAGE>
than it was on the Offering Date for that Offering, that day shall become the
next Offering Date, the Offering that would otherwise have continued in effect
shall immediately terminate and the Employees who were enrolled in the
terminated Offering shall automatically be enrolled in the new Offering that
starts such day.

      (f) If the Company's accountants advise the Company that the accounting
treatment of purchases under the Plan will change or has changed in a manner
that the Company determines is detrimental to its best interests, then the
Company may, in its discretion, take any or all of the following actions: (i)
terminate each ongoing Offering as of the next Purchase Date (after the purchase
of stock on such Purchase Date) under such Offering; (ii) set a new Purchase
Date for each ongoing Offering and terminate each such Offering after the
purchase of stock on such Purchase Date; (iii) amend the Plan and each ongoing
Offering to reduce or eliminate an accounting treatment that is detrimental to
the Company's best interests and (iv) terminate each ongoing Offering and refund
any money contributed to the Participants.

2.    ELIGIBLE EMPLOYEES.

      (a) Each Eligible Employee who, on the date that is fourteen (14) days
prior to the Offering Date of an Offering hereunder, is (i) an employee of the
Company; (ii) an employee of a Subsidiary incorporated in the United States; or
(iii) an employee of a Subsidiary that is not incorporated in the United States,
provided that the Board or Committee has designated the employees of such
Subsidiary as eligible to participate in the Offering, shall be granted a
Purchase Right on the Offering Date of such Offering.

      (b) Notwithstanding the foregoing, the following Employees shall not be
Eligible Employees or be granted Purchase Rights under an Offering:

            (i) part-time or seasonal Employees whose customary employment is
twenty (20) hours per week or less;

            (ii) part-time or seasonal Employees whose customary employment is
five (5) months per calendar year or less;

            (iii) five percent (5%) stockholders (including ownership through
unexercised and/or unvested stock options) as described in Section 6(c) of the
Plan; or

            (iv) Employees in jurisdictions outside of the United States if, as
of the Offering Date of the Offering, the grant of such Purchase Rights would
not be in compliance with the applicable laws of any jurisdiction in which the
Employee resides or is employed.

      (c) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during an ongoing Offering shall not be able to participate in
such Offering.

3.    PURCHASE RIGHTS.

      (a) Subject to the limitations set forth herein and in the Plan, a
Participant's Purchase Right shall permit the purchase of the number of shares
of Common Stock purchasable with up to fifteen percent (15%) of such
Participant's Earnings paid during the period of such Offering


                                       2.
<PAGE>
beginning immediately after such Participant first commences participation;
provided, however, that no Participant may have more than fifteen percent (15%)
of such Participant's Earnings applied to purchase shares of Common Stock under
all ongoing Offerings under the Plan and all other plans of the Company and
Related Corporations that are intended to qualify as Employee Stock Purchase
Plans.

      (b) For Offerings hereunder, "Earnings" means the base compensation paid
to a Participant, including all salary, wages and overtime pay (including
amounts elected to be deferred by the Participant, that would otherwise have
been paid, under any cash or deferred arrangement or other deferred compensation
program established by the Company or a Related Corporation), but excluding all
of the following: (i) all commissions, bonuses, and other remuneration paid
directly to such Participant, (ii) profit sharing, (iii) the cost of employee
benefits paid for by the Company or a Related Corporation, (iv) education or
tuition reimbursements, (v) imputed income arising under any Company or a
Related Corporation group insurance or benefit program, (vi) traveling expenses,
(vii) business and moving expense reimbursements, (viii) income received in
connection with stock options, (ix) contributions made by the Company or a
Related Corporation under any employee benefit plan, and (x) other similar items
of compensation.

      (c) Notwithstanding the foregoing, the maximum number of shares of Common
Stock that a Participant may purchase on any Purchase Date in an Offering shall
be such number of shares as has a Fair Market Value (determined as of the
Offering Date for such Offering) equal to (x) $25,000 multiplied by the number
of calendar years in which the Purchase Right under such Offering has been
outstanding at any time, minus (y) the Fair Market Value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) that, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such calendar years in which the Purchase Right is
outstanding. The amount in clause (y) of the previous sentence shall be
determined in accordance with regulations applicable under Section 423(b)(8) of
the Code based on (i) the number of shares previously purchased with respect to
such calendar years pursuant to such Offering or any other Offering under the
Plan, or pursuant to any other Company or Related Corporation plans intended to
qualify as Employee Stock Purchase Plans, and (ii) the number of shares subject
to other Purchase Rights outstanding on the Offering Date for such Offering
pursuant to the Plan or any other such Company or Related Corporation Employee
Stock Purchase Plan.

      (d) The maximum aggregate number of shares of Common Stock available to be
purchased by all Participants under an Offering shall be the number of shares of
Common Stock remaining available under the Plan on the Offering Date. If the
aggregate purchase of shares of Common Stock upon exercise of Purchase Rights
granted under the Offering would exceed the maximum aggregate number of shares
available, the Board shall make a pro rata allocation of the shares available in
a uniform and equitable manner.


      (e) Notwithstanding the foregoing, the maximum number of shares of Common
Stock that an Eligible Employee may purchase on any Purchase Date shall not
exceed seven thousand five hundred (7,500) shares.



                                       3.
<PAGE>
4.    PURCHASE PRICE.

      The purchase price of shares of Common Stock under an Offering shall be
the lesser of: (i) eighty-five percent (85%) of the Fair Market Value of such
shares of Common Stock on the applicable Offering Date, or (ii) eighty-five
percent (85%) of the Fair Market Value of such shares of Common Stock on the
applicable Purchase Date, in each case rounded up to the nearest whole cent per
share. For the Initial Offering, the Fair Market Value of the shares of Common
Stock at the time when the Offering commences shall be the price per share at
which shares are first sold to the public in the Company's initial public
offering as specified in the final prospectus for that initial public offering.

5.    PARTICIPATION.

      (a) An Eligible Employee may elect to participate in an Offering on the
Offering Date. An Eligible Employee shall elect his or her payroll deduction
percentage on such enrollment form as the Company provides. The completed
enrollment form must be delivered to the Company prior to the date participation
is to be effective, unless a later time for filing the enrollment form is set by
the Company for all Eligible Employees with respect to a given Offering. Payroll
deduction percentages must be expressed in whole percentages of Earnings, with a
minimum percentage of one percent (1%) and a maximum percentage of fifteen
percent (15%). Except as provided in paragraph (f) below with respect to the
Initial Offering, Contributions may be made only by way of payroll deductions.

      (b) A Participant may increase or decrease his or her participation level
at any time during an Offering with such change to be effective commencing as of
the next Purchase Period. Any such increase or decrease in participation level
shall be made by delivering a notice to the Company or a designated Subsidiary
in such form as the Company provides prior to the ten (10) day period (or such
shorter period of time as determined by the Company and communicated to
Participants) immediately preceding the next Purchase Period for which it is to
commence.

      (c) A Participant may decrease (including a decrease to zero percent (0%))
his or her participation level no more than twice during a Purchase Period (and
the second decrease in participation level must be to zero percent (0%)). Any
such change in participation level shall be made by delivering a notice to the
Company or a designated Related Corporation in such form as the Company provides
prior to the ten (10) day period (or such shorter period of time as determined
by the Company and communicated to Participants) immediately preceding the next
Purchase Date of the Purchase Period for which it is to be effective. Such
change will become effective as soon as administratively practicable following
the Company's receipt of the notice.

      (d) A Participant may withdraw from an Offering and receive a refund of
his or her Contributions (reduced to the extent, if any, such Contributions have
been used to acquire shares of Common Stock for the Participant on any prior
Purchase Date) without interest, at any time prior to the end of the Offering,
excluding only each ten (10) day period immediately preceding a Purchase Date
(or such shorter period of time determined by the Company and communicated to
Participants), by delivering a withdrawal notice to the Company or a designated
Subsidiary in such form as the Company provides. A Participant who has withdrawn
from an Offering shall


                                       4.
<PAGE>
not again participate in such Offering, but may participate in subsequent
Offerings under the Plan in accordance with the terms of the Plan and the terms
of such subsequent Offerings.

      (e) Notwithstanding the foregoing or any other provision of this Offering
document or of the Plan to the contrary, neither the enrollment of any Eligible
Employee in the Plan nor any forms relating to participation in the Plan shall
be given effect until such time as a registration statement covering the
registration of the shares under the Plan that are subject to the Offering has
been filed by the Company and has become effective.

      (f) Notwithstanding the foregoing or any other provision of this Offering
document or of the Plan to the contrary, with respect to the Initial Offering
only, each Eligible Employee who is employed on the IPO Date automatically shall
be enrolled in the Initial Offering, with a Purchase Right to purchase up to the
number of shares of Common Stock that are purchasable with fifteen percent (15%)
of the Eligible Employee's Earnings, subject to the limitations set forth in
Section 3(c) - 3(e) above. Following the filing of an effective registration
statement pursuant to a Form S-8, such Eligible Employee shall be provided a
certain period of time, as determined by the Company in its sole discretion,
within which to elect to authorize payroll deductions for the purchase of shares
during the Initial Offering (which may be for a percentage that is less than
fifteen percent (15%) of the Eligible Employee's Earnings). If such Eligible
Employee elects not to authorize such payroll deductions, the Eligible Employee
instead may purchase shares of Common Stock under the Plan by delivering a
single cash payment for the purchase of such shares to the Company or a
designated Subsidiary prior to the ten (10) day period (or such shorter period
of time as determined by the Company and communicated to Participants)
immediately preceding the Purchase Date under the Initial Offering. If an
Eligible Employee neither elects to authorize payroll deductions nor chooses to
make a cash payment in accordance with the foregoing sentence, then the Eligible
Employee shall not purchase any shares of Common Stock during the Initial
Offering. After the end of the Initial Offering, in order to participate in any
subsequent Offerings, an Eligible Employee must enroll and authorize payroll
deductions prior to the commencement of the Offering, in accordance with
paragraph (a) above; provided, however, that once an Eligible Employee enrolls
in an Offering and authorizes payroll deductions (including in connection with
the Initial Offering), the Eligible Employee automatically shall be enrolled for
all subsequent Offerings until he or she elects to withdraw from an Offering
pursuant to paragraph (c) above or terminates his or her participation in the
Plan.

6.    PURCHASES.

      Subject to the limitations contained herein, on each Purchase Date, each
Participant's Contributions (without any increase for interest) shall be applied
to the purchase of whole shares, up to the maximum number of shares permitted
under the Plan and the Offering.

7.    NOTICES AND AGREEMENTS.

      Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering, shall be deemed effectively given
upon receipt or, in the case of notices and


                                       5.
<PAGE>
agreements delivered by the Company, five (5) days after deposit in the United
States mail, postage prepaid.

8.    EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

      The Purchase Rights granted under an Offering are subject to the approval
of the Plan by the stockholders of the Company as required for the Plan to
obtain treatment as an Employee Stock Purchase Plan.

9.    OFFERING SUBJECT TO PLAN.

      Each Offering is subject to all the provisions of the Plan, and the
provisions of the Plan are hereby made a part of the Offering. The Offering is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of an Offering and those of the
Plan (including interpretations, amendments, rules and regulations which may
from time to time be promulgated and adopted pursuant to the Plan), the
provisions of the Plan shall control.


                                       6.