SAN DIEGO, Aug. 7 /EMWNews/ -- SGX Pharmaceuticals

(Nasdaq: SGXP) today announced its financial results for the three and six

months ended June 30, 2008. For the three months ended June 30, 2008, the

Company posted revenues of $4.3 million and a net loss of $7.2 million. For

the six months ended June 30, 2008, revenues were $21.3 million and the net

loss was $3.5 million. The revenue in the six month period includes $10.8

million of revenue earned in the first quarter attributable to the one-time

recognition of an upfront payment related to the Company's collaboration

with Novartis. Cash, cash equivalents and short-term investments totaled

$23.7 million at June 30, 2008 compared to $39.0 million at December 31,

2007.



    Total revenues for the three months ended June 30, 2008 were $4.3

million compared to $8.5 million for the three months ended June 30, 2007.

Total revenues for the six months ended June 30, 2008 were $21.3 million,

compared to $19.5 million for the six months ended June 30, 2007. The

decrease of $4.2 million for the three month period was primarily

attributable to a decrease in revenues recognized under our Novartis

collaboration due to the conclusion of the research term in late March 2008

and a decrease in revenues earned under our federal research grant. The

increase of $1.8 million for the six month period was primarily due to an

increase in revenue recognized under the Novartis collaboration, as noted

previously, offset by a decrease in revenues from the Company's federal

research grant. This decrease was primarily due to the recognition of $3.5

million of revenue during the first quarter of 2007 in connection with an

agreement on the reimbursement of overhead costs incurred on grant research

efforts since the commencement of the grant in July 2005.



    Research and development expenses for the three months ended June 30,

2008 and 2007 were $9.2 million and $10.5 million, respectively. Research

and development expenses for the six months ended June 30, 2008 and 2007

were $20.6 million and $20.5 million, respectively. The decrease of $1.3

million for the three month period was primarily attributable to a decrease

in preclinical and clinical costs incurred in connection with the research

and development activities of our oncology pipeline. Research and

development expenses for the six month periods were generally consistent

from period to period.



    General and administrative expenses for the three months ended June 30,

2008 and 2007 were $2.3 million and $2.1 million, respectively. General and

administrative expenses for the six months ended June 30, 2008 and 2007

were $4.4 million in each period. The increase of $0.2 million for the

three month period was primarily attributable to an increase in legal and

professional fees offset by a decrease in share-based compensation expense.



    SGX reported a net loss for the three months ended June 30, 2008 of

$7.2 million, or $0.35 per share. This compares with a net loss for the

three months ended June 30, 2007 of $4.0 million, or $0.26 per share. For

the six months ended June 30, 2008, the net loss was $3.5 million, or $0.17

per share. This compares with a net loss for the six months ended June 30,

2007 of $5.1 million, or $0.33 per share. The net loss for the six months

ended June 30, 2008 is less than the net loss for the three months ended

June 30, 2008 due to the Company's reporting net income in the first

quarter of 2008 as a result of the $10.8 million of revenue earned in the

first quarter that was attributable to the one-time recognition of the

remaining portion of the upfront payment related to the Company's

collaboration with Novartis.

    About SGX Pharmaceuticals



    SGX Pharmaceuticals, Inc. is a biotechnology company focused on the

discovery, development and commercialization of novel, targeted

therapeutics directed at addressing unmet medical needs in oncology. Our

drug development programs target the MET receptor tyrosine kinase, an

enzyme implicated in a broad array of cancers, and the BCR-ABL tyrosine

kinase enzyme for the treatment of Chronic Myelogenous Leukemia, or CML.

Our drug discovery activities are focused on a portfolio of other protein

and enzyme targets that have been implicated in human cancers, including

JAK2, RON, ALK, RAS and IKKe. More information on the pipeline and drug

discovery platform can be found at http://www.sgxpharma.com and in the

Company's various filings with the Securities and Exchange Commission.



    Merger Agreement with Eli Lilly and Company



    On July 8, 2008, SGX Pharmaceuticals, Inc. entered into an Agreement

and Plan of Merger (the "Merger Agreement") with Eli Lilly and Company, an

Indiana corporation ("Lilly"), and REM Merger Sub, Inc., a Delaware

corporation and a wholly-owned subsidiary of Lilly ("Merger Sub"). Pursuant

to the Merger Agreement, Merger Sub will merge with and into SGX (the

"Merger"), with SGX continuing as the surviving corporation and a

wholly-owned subsidiary of Lilly. As a result of the Merger, each share of

SGX common stock issued and outstanding immediately prior to the effective

time of the Merger (other than shares held by Lilly or Merger Sub or by

stockholders of SGX who have validly exercised their appraisal rights under

Delaware law) will be converted into the right to receive $3.00 in cash,

without interest.



    Pursuant to the terms of the Merger Agreement and as permitted under

the applicable SGX equity plans, all of SGX's unvested stock options will

vest prior to the effective time of the Merger. Any issued and outstanding

stock options with an exercise price per share greater than or equal to

$3.00 that are not exercised prior to the effective time of the Merger will

terminate. Any issued and outstanding stock options with an exercise price

per share less than $3.00 will be converted into the right to receive a

payment equal to the product of (1) the excess of $3.00 per share over the

exercise price per share of such stock options and (2) the number of shares

of SGX common stock subject to such stock options.



    The completion of the Merger is subject to the satisfaction or waiver

of a number of closing conditions, including, among others, (1) adoption of

the Merger Agreement by the holders of a majority of SGX's outstanding

common stock, (2) subject to certain exceptions, the absence of any

material adverse effect on SGX from and after the date of the Merger

Agreement, (3) the expiration or termination of the waiting period under

the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (4)

the absence of any legal prohibitions on the closing of the Merger and (5)

subject to certain exceptions, the continued accuracy of SGX's

representations and warranties as of the effective time of the Merger.



    The special meeting of stockholders to consider and vote upon the

proposal to adopt the Merger Agreement and to transact such other business

as may properly come before the special meeting (or any adjournment,

postponement or continuance thereof) is scheduled for 9:00 a.m., California

time, on August 20, 2008, at SGX's corporate headquarters located at 10505

Roselle Street, San Diego, California 92121.



    Additional Information



    SGX filed a definitive proxy statement with the Securities and Exchange

Commission on July 21, 2008 with respect to the proposed merger transaction

with Eli Lilly and Company. Before making any voting or investment decision

with respect to the merger, investors and stockholders of SGX are urged to

read the proxy statement and the other relevant materials carefully in

their entirety because they contain important information about the merger.

The proxy statement and other relevant materials, and any other documents

filed by SGX with the SEC, may be obtained free of charge at the SEC's

website at http://www.sec.gov. In addition, investors and stockholders may

obtain free copies of the documents filed with the SEC by going to SGX's

Investor Relations page on its corporate website at

http://www.sgxpharma.com or by directing a written request to SGX at 10505

Roselle Street, San Diego, California 92121 -- Attention: Corporate

Secretary.



    Participants in the Solicitation



    SGX and its directors and executive officers may be deemed to be

participants in the solicitation of proxies from SGX stockholders in

connection with the merger. Certain directors and executive officers of SGX

may have direct or indirect interests in the merger due to, among other

things, securities holdings, pre-existing or future indemnification

arrangements, vesting of equity awards, or rights to severance payments in

connection with the merger. Additional information regarding the directors

and executive officers of SGX and their interests in the merger is

contained in the definitive proxy statement that SGX filed with the SEC.



    Forward Looking Statements



    Statements in this press release that are not strictly historical in

nature are forward-looking statements. These statements include, but are

not limited to, statements related to research and development programs,

the proposed merger transaction, including whether the merger transaction

will be approved by SGX's stockholders, whether the other conditions to

closing of the proposed transaction will be met and if any of the potential

benefits of the proposed merger will be realized, the potential of the

Company's inhibitors as treatments for certain cancers, and the ability to

discover, develop, build a pipeline of and commercialize cancer

therapeutics. These statements are only predictions based on current

information and expectations and involve a number of risks and

uncertainties. Actual events or results may differ materially from those

projected in any of such statements due to various factors, including the

risks and uncertainties inherent in drug discovery, development and

commercialization, which include, without limitation, the potential failure

of development candidates to advance through preclinical studies or

demonstrate safety and efficacy in clinical testing. The results of early

preclinical studies or clinical trials may not be predictive of future

results, and the Company cannot provide any assurances that any of its

compounds or development candidates will have favorable results in

preclinical studies or future clinical trials. In addition, results may be

affected by the failure to enter into new collaborations on any of its

research and development programs in the event that the merger transaction

is not consummated, competition from other biotechnology and pharmaceutical

companies, its effectiveness at managing its financial resources, the scope

and validity of patent protection for its products, and its ability to

obtain additional funding to support its operations. For a discussion of

these and other factors, please refer to the risk factors described in the

Company's annual report on Form 10-K for the year ended December 31, 2007

and the Company's most recent quarterly report on Form 10-Q as well as

subsequent filings with the Securities and Exchange Commission. You are

cautioned not to place undue reliance on these forward-looking statements,

which speak only as of the date hereof. This caution is made under the safe

harbor provisions of the Private Securities Litigation Reform Act of 1995.

All forward-looking statements are qualified in their entirety by this

cautionary statement and SGX undertakes no obligation to revise or update

this press release to reflect events or circumstances after the date

hereof.










                          SGX PHARMACEUTICALS, INC.



                    CONSOLIDATED STATEMENTS OF OPERATIONS

                    (in thousands, except per share data)

                                 (unaudited)



                                      Three Months Ended   Six Months Ended

                                            June 30,           June 30,

                                         2008     2007      2008     2007

    Revenue:

      Collaborations and commercial

       agreements                       $2,882   $5,722   $17,883  $11,369

      Grants                             1,424    2,784     3,395    8,105

    Total revenue                        4,306    8,506    21,278   19,474



    Expenses:

      Research and development           9,237   10,524    20,586   20,542

      General and administrative         2,263    2,126     4,384    4,359

    Total operating expenses            11,500   12,650    24,970   24,901



    Loss from operations                (7,194)  (4,144)   (3,692)  (5,427)

    Interest income (expense), net          (7)     131       212      316



    Net loss                           $(7,201) $(4,013)  $(3,480) $(5,111)



    Basic and diluted net loss

     per share                          $(0.35)  $(0.26)   $(0.17)  $(0.33)



    Shares used to compute basic and

     diluted net loss per share         20,650   15,337    20,590   15,281







                          Three Months Ended             Three Months Ended

                           June 30, 2008 (1)              June 30, 2007 (1)

                                 Stock-                      Stock-

                                 based   Reported            based    Reported

                             compensation  GAAP           compensation  GAAP

                     non-GAAP   expense   results non-GAAP  expense    results



    Net loss         $(6,339)   $(862)  $(7,201)  $(2,911)  $(1,102)  $(4,013)



    Basic and diluted

     net loss per

     share            $(0.31)  $(0.04)   $(0.35)   $(0.19)   $(0.07)   $(0.26)



    Research and

     development

     expenses         $8,870     $367    $9,237    $9,975      $549   $10,524



    General and

     administrative

     expenses         $1,768     $495    $2,263    $1,573      $553    $2,126







                           Six Months Ended             Six Months Ended

                           June 30, 2008 (1)            June 30, 2007 (1)

                                 Stock-                      Stock-

                                 based   Reported            based    Reported

                             compensation  GAAP           compensation  GAAP

                     non-GAAP   expense   results non-GAAP  expense    results



    Net loss         $(1,992) $(1,488)  $(3,480)  $(3,020)  $(2,091)  $(5,111)



    Basic and diluted

     net loss per

     share            $(0.10)  $(0.07)   $(0.17)   $(0.20)   $(0.14)   $(0.33)



    Research and

     development

     expenses        $19,925     $661   $20,586   $19,492    $1,050   $20,542



    General and

     administrative

     expenses         $3,557     $827    $4,384    $3,318    $1,041    $4,359







                          SGX PHARMACEUTICALS, INC.



                    CONDENSED CONSOLIDATED BALANCE SHEETS

                                (in thousands)

                                 (unaudited)



                                                         June 30, December 31,



                                                            2008      2007



    Assets

      Cash, cash equivalents and short-term investments    $23,676   $38,990

      Accounts receivable                                      954     2,706

      Other current assets                                   1,217     1,187

      Property and equipment, net                            3,504     3,889

      Other assets                                           4,286     4,284

        Total assets                                       $33,637   $51,056



    Liabilities and stockholder's equity

      Current liabilities                                   $9,676   $24,991

      Deferred revenue, long-term                              792     1,042

      Stockholder's equity                                  23,169    25,023

        Total liabilities and stockholder's equity         $33,637   $51,056



   (1) In addition to disclosing financial results calculated in accordance

       with generally accepted accounting principles (GAAP), this table

       contains non-GAAP financial measures that exclude the effect of

       non-cash stock compensation expense. The Company believes

       that the presentation of results excluding non-cash stock compensation

       expense provides meaningful supplemental information to both management

       and investors that is indicative of the Company's core operating

       results. The Company believes these non-GAAP financial measures

       facilitate comparison of operating results across reporting periods,

       and uses these non-GAAP financial measures when evaluating its

       financial results, as well as for internal planning and forecasting

       purposes. These non-GAAP financial measures should not be considered

       a substitute for, or superior to, financial measures calculated in

       accordance with GAAP.