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SGX Pharmaceuticals, Inc.

    ATTORNEYS AT LAW

    Broomfield, CO

    720 566-4000

    Palo Alto, CA

    4401 Eastgate Mall

    650 843-5000

    San Diego, CA

    92121-1909

    Reston, VA

    Main 858 550-6000

    703 456-8000

    Fax 858 550-6420

    San Francisco, CA

    www.cooley.com

    415 693-2000

    September 22, 2005

    Washington, DC

    202 842-7800

    J. PATRICK LOOFBOURROW

    Via Facsimile, Federal Express and Edgar

    (858) 550-6089

    jploofbourrow@cooley.com

Vanessa Robertson

Mary Fraser, Esq.

U.S. Securities and Exchange Commission

Mail Stop 6010

100 F Street, NE

Washington, D.C. 20549

    Re:

    SGX Pharmaceuticals, Inc. (“SGX” or the “Company”)

Registration Statement on Form S-1 (File No. 333-128059)

Dear Ms. Fraser and Ms. Robertson:

We are writing to provide you with information to assist the staff of the Securities and Exchange
Commission (the “Staff”) in its review of the above-referenced Registration Statement. While not
reflected in the Registration Statement, as filed, the Company currently anticipates a price range
of between approximately $6.67 and $8.85 per share for the Company’s common stock (i.e., an approximately
$130 million to $170 million pre-money valuation). The Company has not adjusted the share and per
share amounts of its common stock (“Common Stock”)
and preferred stock (“Preferred Stock”) in the
Registration Statement to give effect to any reverse stock split in connection with the offering
contemplated by the Registration Statement. If necessary, a subsequent amendment to the
Registration Statement will give effect to any reverse stock split, which will depend on market
conditions and the underwriters estimate of an appropriate valuation.

We are providing the following information for the Staff’s consideration in connection with the
Company’s pricing of stock option grants during the period from July 1, 2004 to June 30, 2005.
Included within this letter is a table summarizing all stock option grants and stock awards during
this period. The table lists the grant date, number of shares, exercise price, the estimated fair
value as set forth in this memo and the related deferred stock compensation. All of the options
listed in the table were granted at the then-current estimated fair value of the Common Stock, as
determined by its Board of Directors (“Board”) at the time of each grant. All members of the
Board, other than the Company’s CEO, are non-employee directors, all of whom have extensive
experience in the biotechnology industry. Each of the Company’s non-employee directors is
affiliated with a substantial number of private companies in the biotechnology industry. The
Company believes that the composition of the Board resulted in an unbiased view of the stock value
and, together with the Board’s cumulative knowledge of, and experience with, other similar
companies, produced a fair valuation of the Common Stock. In the absence of a public

Ms. Robertson

Ms. Fraser, Esq.

September 22, 2005

Page Two

trading market, the Board considered numerous objective and subjective factors to determine the
value at each option grant date, including the factors described below:

    (a)

    option grants involved illiquid securities in a private company;

    (b)

    the state of the capital markets and valuations of comparable private biotechnology
companies;

    (c)

    the shares of common stock acquired upon exercise are subject to vesting ratably
(generally 25% after the first year (or 25% vested upon grant in the case of certain grants
to existing employees), then ratably per month over the remaining 3 years);

    (d)

    prices of Preferred Stock issued by the Company to outside investors in arms-length
transactions, and the rights, preferences and privileges of the Preferred Stock over the
Common Stock (in particular, the substantial aggregate liquidation preference of the
Preferred Stock);

    (e)

    the amount of convertible and non-convertible indebtedness outstanding and the
existence and scope of security interests on the Company’s assets and intellectual
property;

    (f)

    the Company’s performance and status of clinical trials and preclinical activities at
the time of grant;

    (g)

    important developments relating to the acquisition and advancement of the Company’s
product candidate, Troxatyl;

    (h)

    the Company’s stage of development and business strategy; and

    (i)

    the likelihood of, and risks associated with, achieving a
liquidity event for the shares of Common Stock underlying these options, such as an initial public offering (“IPO”)
or sale of the Company, given the stage of the Company’s development and prevailing market
conditions.

The Board specifically took into account the following provisions of the various series of the
Company’s then-outstanding Preferred Stock in determining the fair value of the Common Stock at the
time of the option grants:

Ms. Robertson

Ms. Fraser, Esq.

September 22, 2005

Page Three

    (a)

    the substantial aggregate liquidation preference of the holders of Preferred Stock
relative to the Common Stock in the case of a sale, merger, liquidation or winding up of
the Company;

    (b)

    the participation rights of the holders of Preferred Stock that apply even after the
payment of the aggregate liquidation preferences, providing for pro rata sharing of
liquidation proceeds with the holders of Common Stock;

    (c)

    the redemption rights of the Preferred Stock, which permit the holders of at least 66
2/3% of the then outstanding shares of Preferred Stock to elect to cause the
Company to redeem all outstanding shares of Preferred Stock in three annual installments at
any time after April 21, 2008 (and prior to completing the Series B preferred stock
financing described below, after September 2005);

    (d)

    the conversion and anti-dilution provisions of the Preferred Stock and the fact that
the Preferred Stock will not automatically convert into Common Stock unless the price per
share in the initial public offering is at least $5.00 per share (and a much higher price
per share in the case of shares of the previously outstanding series of Preferred Stock);

    (e)

    the Preferred Stock dividends (with annual dividends of $0.1971 per share of Series A
Preferred Stock and $0.3768 per share of Series B Preferred Stock (and much higher
dividends in the case of shares of the previously outstanding series of Preferred Stock)),
when and if declared by the Board, per share prior to payment of any other dividends; and

    (f)

    the voting power of holders of Preferred Stock relative to holders of Common Stock,
including the number of Board members designated by the holders of Preferred Stock (four of
seven or eight members during much of 2004 and three of six members as of June 30, 2005).

In connection with the preparation of the financial statements necessary for the filing of its
Registration Statement, the Company analyzed its stock option grants from July 1, 2004 to June 30,
2005. The Company believes July 1, 2004 is the appropriate starting date to perform an analysis of
the estimated fair value of the Company’s stock because of the significant uncertainty related to
the Company’s business development and the unfavorable climate in the public and private equity
markets prior to such date. Prior to that date, the Company had been attempting to raise
additional capital through a preferred equity financing but was unable to do so on terms acceptable
to the Company. Accordingly, in July 2004, the Company completed the first tranche of a two
tranche aggregate $13.4 million issuance of secured convertible promissory notes and

Ms. Robertson

Ms. Fraser, Esq.

September 22, 2005

Page Four

warrants (in which the lenders placed a lien on substantially all of the Company’s assets and
intellectual property). In addition, in July 2004, the Company acquired the exclusive worldwide
licensing rights to the product candidate, Troxatyl, from Shire Biochem Inc. A substantial portion
of the proceeds from the first tranche issuance of secured convertible promissory notes ($3
million) was paid to Shire Biochem as an up-front payment. Prior to acquiring the exclusive rights
to Troxatyl, all of the Company’s potential drug candidates were in various stages of pre-clinical
development. The Company did not (and does not) anticipate filing its first Investigational New
Drug application from an internally developed compound until the fourth quarter of 2006. Without a
drug candidate in at least Phase II clinical trials, the Company did not believe that it had any
near-term potential IPO prospects. With the benefit of hindsight and the knowledge of how numerous
uncertainties existing at the time of option grants were resolved, the Company reconsidered whether
certain of the stock options granted contained a compensatory element that should be recorded
within the Company’s financial statements. As a result, the Company has concluded that
compensation expense should be recorded for stock options granted between July 1, 2004 and June 30,
2005 and in any future months where the exercise price is below the estimated fair value.

Business Overview

The Company was originally incorporated in Delaware in 1998. The Company is a biotechnology
company focused on the discovery, development and commercialization of innovative cancer
therapeutics for diseases such as acute myelogenous leukemia (“AML”), myelodysplastic syndrome and
chronic myelogenous leukemia that is resistant to treatment with Gleevec™ (imatinib). The
Company’s product candidate, Troxatyl, is currently in a pivotal Phase II/III clinical trial for
the third-line treatment of AML. If the results of the ongoing Phase II/III clinical trial are
positive, the Company expects to submit a New Drug Application (“NDA”) to the U.S. Food and Drug
Administration (“FDA”) in late 2006 or early 2007, leading to a potential product launch during
2007.

The Company is operating in a rapidly changing and competitive market, and to be successful the
Company will need to do the following:

    •

    complete the successful development of Troxatyl and any other product candidates it may
develop alone and/or through strategic partnerships;

    •

    maintain and protect intellectual property rights to develop, manufacture and
commercialize Troxatyl and any other product candidates it may develop;

    •

    develop, or otherwise access, a focused sales and marketing organization;

Ms. Robertson

Ms. Fraser, Esq.

September 22, 2005

Page Five

    •

    demonstrate to hospitals, physicians, patients and third-party payers the utility and
cost-effectiveness of the Company’s products if they are approved for sale; and

    •

    retain key executives, employees and consultants to continue research and development in
connection with and management of the Company’s key programs.

At the time of the grant of the stock options, the Company believed that the fair value set by its
Board was appropriate. However, with the benefit of hindsight and the knowledge of how several
uncertainties were resolved, the Company has carefully considered the issues relevant to estimating
the compensatory element of stock options granted since July 1, 2004. Based on this review, the
Company believes that it has recorded appropriate amounts for deferred stock compensation and
related amortization related to the option grants.

Historical Activity

The Company’s stock option grants from January 1, 2004 through June 30, 2004 were issued at an
exercise price of $1.98 per share (after being adjusted to reflect the 0.126453-for-1 reverse stock
split effected in April 2005). There were no stock option grants to employees from July 1, 2004 to
December 31, 2004. Stock option grants from January 1, 2005 to June 30, 2005 to purchase
approximately 2.1 million shares of Common Stock were issued at an exercise price of $0.50 per
share, or approximately 10.6% of the new Series B preferred stock price of $4.71 per share (that
was issued in April 2005). The exercise prices were set at the fair value as determined by the
Board, which at the time was believed to be representative of the marginal value attributable to
the Company’s shares of Common Stock based in part upon the aggregate liquidation preferences of
the Preferred Stock and the fact that only an IPO or an acquisition of the Company for a
significant amount in excess of the Preferred Stock’s liquidation preference would result in any
value being attributable to the Common Stock.

During June and July 2005, management began informally discussing with investment bankers the
potential for the Company to initiate an IPO. At the July 21, 2005 Board meeting, the Board
authorized the Company’s formal engagement of investment bankers to evaluate its ability to
complete an IPO. The Company held an organization meeting with investment bankers on July 26,
2005.

Cash levels

Since the second half of 2003, the Company has consistently operated under significant financial
constraints, and has been dependent on existing investors and revenue from collaborations to
continue to finance its operations. The following table demonstrates the Company’s vulnerable
financial situation, and its dependence on new equity investment as well as secured loans from

Ms. Robertson

Ms. Fraser, Esq.

September 22, 2005

Page Six

its existing preferred stockholders. These preferred stockholders hold substantial aggregate
liquidation preferences (approximately $75 million at December 31, 2004), which absent a liquidity
event, would have resulted in minimal residual value to the common stockholders.

    Redeemable

    Preferred Stock

    Liquidation

    Month

    Cash

    Net Equity

    and Bridge Notes

    Preferences

    Financial Event

    12/03

    $
    13.6M

    ($74.0M
    )

    $
    88.3M

    $
    90.1M

    —

    12/04

    $
    11.5M

    ($72.8M
    )

    $
    88.0M

    $
    75.7M

    Bridge Loan in July

    2004 and September 2004

    06/05

    $
    10.4M

    ($26.5M
    )

    $
    40.2M

    $
    41.0M

    Series B preferred

    stock financing in

    April 2005

Option activity

The Company had the following stock option and restricted stock grants to employees during 2004 and
the first six months of 2005:

    Options

    Grant Date

    Granted

    Option Price

    January 2004

    28,740

    $
    1.98

    February 2004

    32,679

    $
    1.98

    2004 Total

    61,419

    May 2005

    1,735,500

    $
    .50

    June 2005

    336,250

    $
    .50

    2005 Total

    2,071,750

    Total

    2,132,669

The closing of the first tranche of the Series B preferred stock financing and conversion of the
secured convertible promissory notes from the secured bridge financing (funding for the secured
bridge financing occurred in July and September 2004) in April 2005 was a major milestone for the
Company to enable it to continue its operations despite operating losses. As a result of these
transactions, the Company will now assume that its deemed common stock valuation for financial
reporting purposes is 90% of its most recent Preferred Stock valuation ($4.71 x 90% = $4.24 per
share) starting in April 2005 and looking back to July 1, 2004. (There have been no financings
since July 1, 2004 other than the secured bridge financing in July and September 2004 and the
Series B preferred stock financing in April 2005).

Ms. Robertson

Ms. Fraser, Esq.

September 22, 2005

Page Seven

Based on presentations and materials provided by investment bankers, the Company believes that it
will file for its initial public offering using an offering price valuing the Company at
approximately $150 million pre-money (average of the low and high end of the range provided by the
underwriters). This computes to an offering price of approximately
$7.81 per