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                                                                   EXHIBIT 10.39

                              SEPARATION AGREEMENT

November 18, 2005

James Rotherham
9710 Wren Bluff Drive
San Diego, CA  92127

Dear Jim:

This letter sets forth the substance of the separation agreement (the
"Agreement") that SGX PHARMACEUTICALS, INC., (the "Company") is offering to you
to aid in your employment transition.

      1. SEPARATION. Your last day of work with the Company and your employment
termination date will be November 18, 2005 (the "Separation Date").

      2. ACCRUED SALARY AND VACATION. On the Separation Date, the Company will
pay you all accrued salary, and all accrued and unused vacation earned through
the Separation Date, subject to standard payroll deductions and withholdings.
You are entitled to these payments by law.

      3. SEVERANCE PAYMENT. Commencing on the first regularly scheduled payday
after the Separation Date, Employer shall pay Employee severance in the form of
continuation of Employee's base salary in effect on the Separation Date
("Severance Payments") for a period of six (6) weeks, less appropriate
deductions and withholdings, payable in accordance with Employer's normal
payroll cycles ("Severance Period.").

      4. HEALTH INSURANCE. To the extent provided by the federal COBRA law or,
if applicable, state insurance laws, and by the Company's current group health
insurance policies, you will be eligible to continue your group health insurance
benefits at your own expense following the Separation Date. Later, you may be
able to convert to an individual policy through the provider of the Company's
health insurance, if you wish. You will be provided with a separate notice
describing your rights and obligations under COBRA. If you elect continued
coverage under COBRA, the Company, as part of this Agreement, will pay your
COBRA premiums through December 31, 2005.

      5. STOCK OPTIONS. Under the terms of your stock option agreement and the
applicable plan documents, vesting of your stock options will cease as of the
Separation Date. Your right to exercise any vested shares, and all other rights
and obligations with respect to your stock options(s), will be as set forth in
your stock option agreement, grant notice and applicable plan documents.

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      6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance, or benefits after the Separation Date.

      7. EXPENSE REIMBURSEMENTS. You agree that, within ten (10) days of the
Separation Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the Separation
Date, if any, for which you seek reimbursement. The Company will reimburse you
for these expenses pursuant to its regular business practice.

      8. RETURN OF COMPANY PROPERTY. By the Separation Date, you agree to return
to the Company all Company documents (and all copies thereof) and other Company
property that you have had in your possession at any time, including, but not
limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
tangible property (including, but not limited to, computers), credit cards,
entry cards, identification badges, and keys; and, any materials of any kind
that contain or embody any proprietary or confidential information of the
Company (and all reproductions thereof). Your timely return of all such Company
documents and other property is a condition precedent to your receipt of the
severance benefits provided under this Agreement.

      9. PROPRIETARY INFORMATION OBLIGATIONS. You acknowledge your continuing
obligations under your Employment, Confidential Information and Invention
Assignment Agreement, a copy of which is attached hereto as Exhibit A.

      10. CONFIDENTIALITY. The provisions of this Agreement will be held in
strictest confidence by you and the Company and will not be publicized or
disclosed in any manner whatsoever; provided, however, that: (a) you may
disclose this Agreement in confidence to your immediate family; (b) the parties
may disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the Company
may disclose this Agreement as necessary to fulfill standard or legally required
corporate reporting or disclosure requirements; and (d) the parties may disclose
this Agreement insofar as such disclosure may be necessary to enforce its terms
or as otherwise required by law. In particular, and without limitation, you
agree not to disclose the terms of this Agreement to any current or former
Company employee.

      11. NONDISPARAGEMENT. You agree not to disparage the Company, its
officers, directors, employees, shareholders, and agents, in any manner likely
to be harmful to its or their business, business reputation, or personal
reputation; provided that you will respond accurately and fully to any question,
inquiry or request for information when required by legal process.

      12. NO ADMISSIONS. You understand and agree that the promises and payments
in consideration of this Agreement shall not be construed to be an admission of
any liability or obligation by the Company to you or to any other person, and
that the Company makes no such admission.

      13. RELEASE OF CLAIMS. In exchange for the consideration under this
Agreement, you hereby generally and completely release the Company and its
directors, officers, employees, shareholders, partners, agents, attorneys,
predecessors, successors, parent and subsidiary entities,

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insurers, affiliates, and assigns from any and all claims, liabilities and
obligations, both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring at any time prior to and
including the date you sign this Agreement. This general release includes, but
is not limited to: (a) all claims arising out of or in any way related to your
employment with the Company or the termination of that employment; (b) all
claims related to your compensation or benefits from the Company, including
salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, or any other ownership interests in
the Company; (c) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (d) all tort
claims, including claims for fraud, defamation, emotional distress, and
discharge in violation of public policy; and (e) all federal, state, and local
statutory claims, including claims for discrimination, harassment, retaliation,
attorneys' fees, or other claims arising under the federal Civil Rights Act of
1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"), and
the California Fair Employment and Housing Act (as amended).

      14. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the ADEA ("ADEA Waiver").
You also acknowledge that the consideration given for the ADEA Waiver is in
addition to anything of value to which you were already entitled. You further
acknowledge that you have been advised by this writing, as required by the ADEA,
that: (a) your ADEA Waiver does not apply to any rights or claims that arise
after the date you sign this Agreement; (b) you should consult with an attorney
prior to signing this Agreement; (c) you have twenty-one (21) days to consider
this Agreement (although you may choose to voluntarily sign it sooner); (d) you
have seven (7) days following the date you sign this Agreement to revoke the
ADEA Waiver (in a written revocation sent to me); and (e) the ADEA Waiver will
not be effective until the date upon which the revocation period has expired,
which will be the eighth day after you sign this Agreement (the "Effective
Date"). Nevertheless, your general release of claims, except for the ADEA
Waiver, is effective immediately and not revocable.

      15. SECTION 1542 WAIVER. In granting the release herein, which includes
claims which may be unknown to you at present, you acknowledge that you have
read and understand Section 1542 of the California Civil Code: "A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." You hereby
expressly waive and relinquish all rights and benefits under that section and
any law or legal principle of similar effect in any jurisdiction with respect to
the releases granted herein, including but not limited to the release of unknown
and unsuspected claims granted in this Agreement.

      16. MISCELLANEOUS. This Agreement, including Exhibit A, constitutes the
complete, final and exclusive embodiment of the entire agreement between you and
the Company with regard to its subject matter. It is entered into without
reliance on any promise or representation, written or oral, other than those
expressly contained herein, and it supersedes any other such promises,
warranties or representations. This Agreement shall supersede and extinguish all
prior employment agreements, express or implied, verbal or written, between you
and the Company; provided, however, that this Agreement shall have no effect on
the Employment, Confidential Information and Invention Assignment Agreement,
previously signed by you. This Agreement

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may not be modified or amended except in a writing signed by both you and a duly
authorized officer of the Company. This Agreement will bind the heirs, personal
representatives, successors and assigns of both you and the Company, and inure
to the benefit of both you and the Company, their heirs, successors and assigns.
If any provision of this Agreement is determined to be invalid or unenforceable,
in whole or in part, this determination will not affect any other provision of
this Agreement and the provision in question will be modified so as to be
rendered enforceable. This Agreement will be deemed to have been entered into
and will be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California. Any ambiguity in this Agreement shall not be construed against
either party as the drafter. Any waiver of a breach of this Agreement shall be
in writing and shall not be deemed to be a waiver of any successive breach. This
Agreement may be executed in counterparts and facsimile signatures will suffice
as original signatures.

If this Agreement is acceptable to you, please sign below and return the
original to me.

We wish you the best in your future endeavors.

Sincerely,

SGX PHARMACEUTICALS, INC.

By: /s/ Mike Grey
    ---------------------
        MIKE GREY
        PRESIDENT AND CEO

I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:


/s/ James Rotherham
--------------------------------
JAMES ROTHERHAM



Date: 11/18/05
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                                    EXHIBIT A

     EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT