Document:

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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
-------------------
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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                                                                   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

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