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                                                                   EXHIBIT 10.38

[SGX PHARMACEUTICALS LOGO]

December 13, 2005

                                                                    CONFIDENTIAL

Siegfried Reich, Ph.D.
311 Glenmont Drive
Solana Beach, CA  92075

Dear Siegfried:

I am pleased to offer you the position of Vice President, Drug Discovery with
SGX Pharmaceuticals, Inc. reporting to Mike Grey, President & Chief Executive
Officer. This position is categorized as full-time regular exempt. Following are
the details of our offer.

      -     The salary in this position is $275,000 on an annualized basis, or
            approximately $10,576.92 bi-weekly, subject to standard deductions
            and withholdings.

      -     Subject to approval by the Board of Directors (the "Board"), you
            will receive an option to purchase 150,000 shares of the Company's
            common stock at a price per share equal to its fair market value as
            determined by the Board. The option will have a vesting commencement
            date of your first day of employment with the Company. Twenty five
            percent (25%) of the granted shares will vest on the first
            anniversary of the vesting commencement date. The remaining options
            vest ratably on a monthly basis thereafter until the fourth
            anniversary of the vesting commencement date. The offer of these
            shares is conditioned upon your acceptance of our offer of
            employment and subject to the terms and requirements of the
            Company's 2000 Equity Incentive Plan (the "Incentive Plan") and the
            Company's form of stock option agreement.

      -     Subject to approval by the Board of Directors (the "Board"), on or
            about August 1, 2006, provided you are still an employee of the
            Company at such time, you will receive an option to purchase an
            additional 60,000 shares of the Company's common stock at a price
            per share equal to its fair market value as determined by the Board.
            The option will have a vesting commencement date of August 1, 2006.
            Twenty five percent (25%) of the granted shares will vest on the
            first anniversary of the vesting commencement date. The remaining
            options vest ratably on a monthly basis thereafter until the fourth
            anniversary of the vesting commencement date. The offer of these
            shares is conditioned upon your acceptance of our offer of
            employment and subject to the terms and requirements of the
            Company's Equity Incentive Plan then in effect (the "Effective
            Incentive Plan") and the Company's form of stock option agreement.

      -     You are also eligible to participate in the Company's cash bonus
            program. In your position, you are eligible to earn a cash bonus in
            the range of 15% to 30% of your base salary based upon corporate and
            individual goal achievement. Employees hired in the fourth quarter
            of a calendar year are typically not eligible for bonus payments for
            that calendar year.

      -     Included in the compensation package is a benefits plan that offers
            medical, dental, vision, life insurance, Accidental Death and
            Dismemberment (AD&D) insurance, long-term disability, short-term
            disability insurance; and a 401(k) plan. For full-time employees,
            vacation accrues on a pay period basis at the annual rate of 120
            hours (three weeks). The vacation accrual increases by one day after
            each anniversary with the Company, up to a maximum of 20 days per
            year. The Company also provides employees with five days of sick
            time per year.

As a condition of your employment, you will be required to sign a copy of our
Employment, Confidential Information and Invention Assignment Agreement, which
is attached for your information. In addition, to conform with the

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[SGX PHARMACEUTICALS LOGO]

Immigration Reform and Control Act of 1986, please bring with you on your start
date the original of one of the documents noted in List A on the I-9 form
attached or one document from List B and one document from List C. If you do not
have the originals of any of these documents, please call me immediately. Please
do not complete or sign the I-9 until you begin employment. This offer is
contingent upon your providing sufficient documentation to show proof of
eligibility for employment in the United States.

It is the Company's policy to fully respect the proprietary and confidential
information rights of your previous employers. You are not expected to disclose,
nor are you allowed to use for the Company's purposes, any confidential or
proprietary information you may have acquired as a result of previous
employment.

Your employment with the company is not for a specified term, but may be
terminated by you or the company at any time, with or without cause. If you are
terminated without cause, you will be entitled to receive a severance payment
equivalent to six (6) months of your base salary then in effect on the date of
termination ("Severance Payment"), provided that you comply with all surviving
provisions of this letter and the Employment, Confidential Information and
Invention Assignment Agreement and execute a full general release, releasing all
claims, known or unknown, that you may have against the Company arising out of
or any way related to you employment or termination of employment with the
Company. The Severance Payment will be payable in accordance with SGX's regular
payroll cycle, including continuation of your benefits in accordance with SGX's
regular payroll deductions. The nature of your employment as set forth in this
paragraph cannot be modified in any way except by written agreement signed by
you and an officer of SGX Pharmaceuticals.

In the event of a Change of Control (as that term is defined below) the vesting
of any outstanding stock options described above will be accelerated by 12
months. In the event your employment is terminated by the Company without cause
within one year after a Change of Control, the vesting of your outstanding stock
options described above will be accelerated by a further 12 months, provided
that you comply with all surviving provisions of this letter and the Employment,
Confidential Information and Invention Assignment Agreement and execute a full
general release, releasing all claims, known or unknown, that you may have
against the Company arising out of or any way related to you employment or
termination of employment with the Company. In the event of such termination all
other obligations of the Company to you pursuant to this letter will become
automatically terminated and completely extinguished.

A Change of Control means any one of the following occurrences:

      (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than a trustee or
other fiduciary holding securities of SGX under an employee benefit plan of SGX,
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of the securities of SGX representing
more than 50% of (a) the outstanding shares of common stock of SGX or (b) the
combined voting power of SGX' then-outstanding securities; or

      (ii) The sale or disposition of all or substantially all of SGX' assets
(or any transaction having similar effect is consummated) other than to an
entity of which SGX owns at least 50% of the Voting Stock so long as the sale or
disposition is not under duress of SGX' financial hardship; or

      (iii) SGX is party to a merger or consolidation that results in the
holders of voting securities of SGX outstanding immediately prior thereto
failing to continue to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) less than 50% of the
combined voting power of the voting securities of SGX or such surviving entity
outstanding immediately after such merger or consolidation.

I am pleased to extend this offer to you and look forward to your acceptance.
Please sign and return the attached copy of this offer letter as soon as
possible, but within at least five days of receipt, to indicate your agreement
with the terms of this offer. Once signed by you, this letter and the
Employment, Confidential Information and Invention Assignment Agreement will
constitute the complete agreement between you and SGX Pharmaceuticals, Inc.
regarding employment matters and will supersede all prior written or oral
agreements or understandings on these matters. This letter may only be modified
by a written agreement signed by you and an officer of SGX Pharmaceuticals, Inc.
We hope you will join us February 1, 2006 or sooner. Please contact me if you
have any questions.

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[SGX PHARMACEUTICALS LOGO]

I feel you will be able to make an immediate contribution to our efforts, and I
think you will enjoy the rewards of working for an innovative, fast-paced
organization.

Sincerely,

/s/ Mike Grey
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Mike Grey
President and Chief Executive Officer

Attachments:

      -     Copy of Offer Letter

      -     I-9

      -     Employment, Confidential Information And Invention Assignment
            Agreement


I accept the terms of employment as described in this offer letter and will
start my employment on 2/1/06.



Signature: /s/ Siegfried Reich                       Date: 12/19/05
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