<PAGE>

                                                                   EXHIBIT 10.16

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

                                  CO-OPERATIVE

                      ANTIVIRAL RESEARCH ACTIVITY AGREEMENT

THIS AGREEMENT IS MADE BETWEEN:

-    NOVIRIO SARL, a French pharmaceutical company located 23 - 25 rue de Berri,
     75008 Paris France, on behalf and for the benefit of NOVIRIO
     Pharmaceuticals Limited, a company organized in the Cayman Islands, and
     represented by Bruno Lucidi, President and CEO.

-    The Dipartimento di Biologia Sperimentale "Bernardo Loddo" dell'Universita
     di Cagliari, located Cittadella Universitaria, SS 554 KM 4.5, 09133
     Monserrato, Cagliari, represented by Prof. Giovanni Biggio, Director.

                                       -1-

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1.     PURPOSE

The purpose of this agreement is to define the terms of the co-operative
activity to be undertaken by or for the benefit of each of the parties hereto
and Novirio Pharmaceuticals Limited in connection with research in the field of
antiviral substances, hereafter referred to as `Co-operative activity.' This
agreement covers two entities and in no way creates a corporate, joint venture
or partnership structure or arrangement. It excludes the `affectio societatis'
and any other direct or indirect association with any corporation whatever its
structure may be. Specifically with regard to third parties, each of the parties
will act in its own name and on its own account and will have no authority to
bind the other party hereto.

2.     SCOPE

This agreement is applicable to research in the field of antiviral substances,
the main field of interest of the Section of Microbiology of Dipartimento di
Biologia Sperimentale dell'Universita di Cagliari, and includes without
limitation all research activities directly or indirectly related to the
development of antiviral substances, tests or analytic procedures relating
thereto and all other research activity made necessary by the main activity
which will constitute a part of the co-operative activity.

The initial research program which will constitute a part of the Co-operative
activity is attached (annex 1). In case of inconsistency between annex 1 and
present agreement, the latter shall prevail.

3.     CO-OPERATIVE ACTIVITIES

3.1    Personnel

The Co-operative activity will be carried out by NOVIRIO SARL personnel with the
support of personnel of the Section of Microbiology of the Dipartimento di
Biologia Sperimentale. Temporary personnel may be hired, when necessary, with
funds provided by NOVIRIO SARL. Any employee assigned to the Co-operative
activity by a party hereto shall remain an employee of such party. Such party
shall be responsible for satisfaction of the obligations it owes to the
employees it has assigned to the Co-operative activity, including civil duties,
such as insurance, social security, taxes, accidents at work and illnesses due
to activity. Each party shall be responsible for its own staff administration
and shall be free to evaluate all needs related to its own staff. Each party is
responsible for acts committed by its staff assigned to the Co-operative
activity. It is understood and agreed that every staff member shall follow the
general rules of discipline and security of the Section of Microbiology of the
Dipartimento di Biologia Sperimentale. Each party shall inform its staff, at the
time of assignment to the Co-operative activity, of necessary measures as
regards to the terms of this agreement.

                                      -2-

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3.2    Location/Facilities

The Co-operative activity will take place at and within the facilities of the
Section of Microbiology of the Dipartimento di Biologia Sperimentale. The
NOVIRIO SARL personnel assigned to the Co-operative activity will have access to
main services, such as documentation centre, general public services from the
Universita di Cagliari on the same conditions as the personnel of the
Dipartimento di Biologia Sperimentale, under the responsibility of the Director
of the Co-operative activity.

3.3    Means

Each party agrees to provide the resources to the Co-operative activity in
accordance with the plan attached hereto in annex 2.

NOVIRIO SARL will retain sole ownership of the basic means which it has supplied
to or paid for the Co-operative activity and shall have the right to remove such
means from the facilities of the Dipartimento di Biologia Sperimentale at the
termination of this agreement.

4.     PARTNERSHIPS AND OTHER AGREEMENTS

Public laboratories or third party entities may collaborate with the parties
hereto in connection with the Co-operative activity, provided, that such
collaboration is regulated by a written agreement with third parties signed by
NOVIRIO SARL and a representative of the Dipartimento di Biologia Sperimentale
specifying the purpose, the duration and the party's contributions and shall not
affect the rights and obligations of the parties arising in connection with or
pursuant to Articles 8, 9 and 10 of this agreement. The present agreement shall
prevail should inconsistencies occur between agreements.

5.     STEERING COMMITTEE

5.1      Establishment and members

       Pursuant to this agreement, a steering committee is hereby established
       for the purpose of determining the detailed objectives for and research
       programs to be undertaken by the Co-operative activity and for the other
       purposes set forth in Article 5.2 of this agreement. The Steering
       Committee will include at least one representative designated from time
       to time by each party hereto and will consist of not more than 5 members.
       The members of the Steering Committee will appoint a chairman. The
       initial members of the Steering Committee are:

              Prof. Jean-Pierre Sommadossi, Chairman of the Board of Novirio
              Pharmaceuticals Limited;

              Mr. Bruno Lucidi, President and CEO of Novirio Pharmaceuticals
              Limited; and

              Prof. Paolo La Colla, Dipartimento di Biologia Sperimentale.

                                      -3-

<PAGE>

       The initial Chairman of the Steering Committee is Prof. Jean-Pierre
Sommadossi.

5.2    Meetings and Responsibilities

The chairman of the Steering Committee shall call a meeting of such committee at
least once a year. Additional meetings of the Steering Committee may be called
by the Chairman as often as the Chairman deems necessary or appropriate. The
Steering Committee shall be responsible for the following matters:

       (i)    the annual determination and establishment of the detailed
              objectives for and the research programs to be undertaken by the
              Co-operative activity;

       (ii)   appointment of a Co-operative activity Director and the Steering
              Committee Chairman;

       (iii)  approval, prior to implementation, of any material modifications
              proposed by the Co-operative activity director to previously
              established detailed objectives or research programs;

       (iv)   oversight, monitoring and modification of the operations of the
              Co-operative activity and the budget attached hereto as annex 2,
              which oversight shall include but not be limited to decisions
              regarding staffing, publications and communications in accordance
              with Article 8 of this agreement and licensing in accordance with
              Article 10 of this agreement.

5.3    Co-operative activity Director

Subject to the authority vested in the Steering Committee, the operations of the
Co-operative activity will be managed by the Co-operative Director who will be a
member of Dipartimento di Biologia Sperimentale. In addition to general
management of the Co-operative activity and implementation of the decisions of
the Steering Committee, the Co-operative activity Director will prepare and
deliver to the Steering Committee research program proposals and co-operative
activity objectives and proposals for modification of any previously approved
detailed objectives and research programs. The initial Co-operative Activity
Director is Prof. Paolo La Colla.

6.     CONFIDENTIALITY

Each party agrees to keep confidential and not disclose or use, except for
purposes permitted for performance under the agreement, any information
whatsoever including without limitation proprietary or confidential business,
technical or scientific information owned by or related to either one of the
involved parties which has been obtained from or derived from information
provided by the other party in connection with the negotiation and execution of
this agreement or the Co-operative activity. Each party agrees to inform its
staff of the terms of this article and ensure that said staff respect these
terms.

This clause shall remain active for as long as the information is not of public
domain without violation of any duties whatsoever resulting from this article.
The information

                                      -4-

<PAGE>

subject to the obligation of confidential non-disclosure and non-use set forth
above does not include information which has been disclosed with a specific
authorization from the Steering Committee.

If one of the parties should find it necessary for the success of its mission to
disclose confidential information to a third party, this information may only be
disclosed after a prior written authorization from the Steering Committee
specifying the conditions of the disclosure.

7.     PUBLICATIONS AND COMMUNICATIONS

Publications and communications related to the Co-operative activity or the
results therefrom shall occur only after prior authorization from the Steering
Committee and shall specify each party's contribution unless one of the parties
specifically requests not to be mentioned.

To this end, the Director of the Co-operative activity shall request, in a
writing directed to the Steering Committee, authorization for publication. The
Steering Committee shall respond to such request within a maximum 2 months after
the date of receipt of such request. Absence of response within this time limit
shall be considered implied consent.

The Steering Committee shall have the right to review any disclosure prior to
its publication or communication and such publication or communication projects
may be modified or certain information suppressed by the Steering Committee if
the Steering Committee believes disclosure of such information might limit the
availability of patent protection or otherwise harm the industrial and/or
commercial operations that may result from the Co-operative activity.
Nevertheless, the Steering Committee may not refuse communication or publication
after 18 months of request unless the strategic importance of the information to
be disclosed can be reasonably proven. In this specific case, decisions related
to the nature and duration of confidentiality shall be made by the Steering
Committee and the researchers involved in the Co-operative activity who are
required to submit scientific reports, can inform the Dipartimento di Biologia
Sperimentale of the results in a confidential report.

8.     INTELLECTUAL PROPERTY - OWNERSHIP AND PROTECTION

8.1    Results obtained outside of the Co-operative activity

Each party retains exclusive ownership of its intellectual property utilized in
and the results of the research and development activities it has carried out
before the date of this agreement. Each party will also retain exclusive
ownership of intellectual property it develops or acquires and results of
research and development activities it has undertaken outside of the
Co-operative activity.

Each party may gratuitously contribute the use of its intellectual property and
knowledge for the realization of work carried out within the scope of the
Co-operative activity.

                                      -5-

<PAGE>

8.2    Results obtained within the Co-operative activity

Results obtained from the Co-operative activity remain the property of both
parties.

Should any party wish to protect results obtained within the Co-operative
activity, it must advise, in writing, the other party, which must inform whether
it wants to protect said results. Absence of response [**] after the date of
receipt of such notice is understood as refusal to participate in protection of
results, in which case the remaining party may deposit results for protection.

Notwithstanding anything to the contrary, Dipartimento di Biologia agrees and
does hereby grant to NOVIRIO Pharmaceuticals Limited the right of first patent
filing on results susceptible to patenting in its own and the Dipartimento di
Biologia Sperimentale name and at NOVIRIO Pharmaceuticals Limited own expenses,
allowing further investment needed to perform full development within the most
appropriate time frame and substantial additional investment necessary for
product to seek for approval with health registration.

In the event NOVIRIO Pharmaceuticals Limited elects not to: (i) file a first
patent and corresponding patents; (ii) continue procedures in view of obtaining
said patents; or (iii) maintain said patents in effect, NOVIRIO SARL agrees to
inform the Dipartimento di Biologia Sperimentale, as soon as practicable after
such election and in a time period reasonably believed to be sufficient, to
allow the latter to accomplish all necessary formalities for the filing and
maintaining, as the case may be, of patents in its own name, if it wishes to do
so.

Each party agrees to cause:

(i)    all patents to mention the name of the inventor (unless requested
       otherwise) in accordance with current legal dispositions regarding
       deposit of patents; and

(ii)   its staff, mentioned as inventors, to sign and accomplish all necessary
       formalities for the deposit, the maintaining and the defense of said
       patents.

Each party also agrees to cooperate with the other in connection with the
deposit and extensions of patents.

9.     INDUSTRIAL OPERATIONS - LICENSING

9.1    Industrial operations of results obtained within the Co-operative
activity

Dipartimento di Biologia Sperimentale hereby grants to NOVIRIO Pharmaceuticals
Limited the exclusive right to directly or indirectly use or license the results
obtained within or from the Co-operative activity. In case of rewarded
commercial use of such results, NOVIRIO SARL or NOVIRIO Pharmaceuticals Limited
shall pay to the Dipartimento di Biologia Sperimentale a fee as set forth below.
It is understood and agreed by the parties hereto that the assessment and
percentage of the fee have been

                                      -6-

<PAGE>

defined at a reasonable level with reference to similar processes/products
available on the market, and that such assessments and fees have taken into
account the intellectual and financial contributions of the parties with respect
to the invention, the development, the launch and protection of
processes/products. The fees payable by NOVIRIO SARL or NOVIRIO Pharmaceuticals
Limited to the Dipartimento di Biologia Sperimentale, and costs to be incurred
by NOVIRIO SARL or NOVIRIO Pharmaceuticals Limited in the case of rewarded
commercial use of results obtained within or from the Co-operative activity
which have been licensed to Novirio Pharmaceuticals Limited, are as follows:

       -      the percentage will be [**]% of the world-wide net sales results;

       -      terms of payment will be defined by an agreement signed by the
              parties before commercialization;

       -      NOVIRIO SARL or NOVIRIO Pharmaceuticals Limited will incur all
              costs of development and if NOVIRIO Pharmaceuticals Limited
              licenses out the compound, it agrees to use reasonable efforts to
              cause the Dipartimento di Biologia Sperimentale to earn a
              percentage of the royalties it receives or a percentage of
              sub-licensing fees equivalent to the [**]% of the world-wide net
              sales.

If NOVIRIO Pharmaceuticals Limited elects not to further develop these results,
it could decide to allow the Dipartimento di Biologia Sperimentale to negotiate
with third parties non-exclusive licenses, for patent use or know-how obtained
within the Co-operative activity. In this case, the Dipartimento di Biologia
Sperimentale shall pay NOVIRIO Pharmaceuticals Limited a fee equivalent to [**]%
of world-wide net sales, in accordance with an agreement that will be signed by
the parties before commercialization.

9.2    INDUSTRIAL OPERATIONS OF RESULTS OBTAINED OUTSIDE THE CO-OPERATIVE
ACTIVITY

9.2.1  Right of First Refusal

Dipartimento di Biologia Sperimentale agrees, subject to confidentiality
obligations rightfully owed by it to third parties pursuant to enforceable
agreements, to provide written notification to either NOVIRIO Pharmaceuticals
Limited or NOVIRIO SARL of any developments and discoveries in the field of
antivirals of which Dipartimento di Biologia Sperimentale becomes aware as soon
as practicable after Dipartimento di Biologia Sperimentale acquires such
awareness.

Dipartimento di Biologia Sperimentale further agrees not to notify any other
third party of such developments or discoveries prior to notifying either
NOVIRIO Pharmaceuticals Limited or NOVIRIO SARL and thereafter for a minimum
period of [**] after delivery of notice to either NOVIRIO Pharmaceuticals
Limited or NOVIRIO SARL. In addition, subject only to the legally enforceable
rights of each of Ministero dell' Universita e della Ricerca Scientifica e
Tecnologica, Intitute Superiore di Sanita, and Regione Autonoma Sardegna,
Dipartimento di Biologia Sperimentale agrees not to enter into any agreements or
arrangements with any third party relating to the license, acquisition,
commercialization or other use of any results or discoveries in the field of
antivirals in

                                      -7-

<PAGE>

which Dipartimento di Biologia Sperimentale acquires or may acquire an interest
prior to offering the same to NOVIRIO Pharmaceuticals Limited.

NOVIRIO Pharmaceuticals Limited shall have a period of [**] after receipt of
such notice to evaluate the results or discoveries and Dipartimento di Biologia
Sperimentale shall, at NOVIRIO Pharmaceuticals Limited expense, cooperate with
such evaluation to the extent reasonably practicable. If, prior to the
expiration of such [**] period, either NOVIRIO Pharmaceuticals Limited or
NOVIRIO SARL notifies Dipartimento di Biologia Sperimentale of NOVIRIO
Pharmaceuticals Limited desire to license, acquire, commercialize or otherwise
use such results or discoveries, Dipartimento di Biologia Sperimentale agrees to
execute such agreements as may be necessary to permit NOVIRIO Pharmaceuticals
Limited or its assigns to license, acquire, commercialize or otherwise use such
results or discoveries on an exclusive basis. The obligation of Dipartimento di
Biologia Sperimentale to execute and deliver such agreements is conditioned upon
the right of Dipartimento di Biologia Sperimentale to receive a fee not lower
than the fee set forth in Article 9.1 in the case of paid commercial use of the
results or discoveries licensed, acquired, commercialized or otherwise used by
NOVIRIO Pharmaceuticals Limited pursuant to this Article 9.2.1.

If NOVIRIO Pharmaceuticals Limited does not notify Dipartimento di Biologia
Sperimentale of its desire to license, acquire, commercialize or otherwise use
such results or discoveries within [**] after receipt of the offer from
Dipartimento di Biologia Sperimentale, Dipartimento di Biologia Sperimentale
shall have the right to offer to other parties the non-exclusive right to
license, acquire, commercialize or otherwise use such results or discoveries.

9.2.2  Revocation of Rights

If, on the second anniversary of an agreement executed by or for the benefit of
NOVIRIO Pharmaceuticals Limited pursuant to Article 9.2.1, NOVIRIO
Pharmaceuticals Limited has not either developed or actively engaged in efforts
to cause the development of any rights or discoveries licensed, assigned or
otherwise acquired by NOVIRIO Pharmaceuticals Limited pursuant to Article 9.2.1,
Dipartimento di Biologia Sperimentale shall have the right to offer to third
parties a non-exclusive interest in such rights and discoveries. NOVIRIO
Pharmaceuticals Limited shall have no right to receive any fees or payments from
either Dipartimento di Biologia or such third parties if such third party
arrangements result in rewarded commercial use.

10.    LITIGATION AND DISPUTES

Parties shall try to settle out of court all litigation and disputes deriving
from the interpretation of this agreement. In case of persistent disagreement
settlement shall fall within the sole competence of the Paris (France) Court.

                                      -8-

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11.    DURATION - TERMINATION

This agreement shall be for the duration of 4 years from date of signature and
will be renewed for this same period by consent expressed in writing by the
parties at least 30 days prior to the expiration of the initial term. Each party
is entitled to terminate this agreement in case of non-respect of one or more
obligations mentioned in this agreement by the other party. Termination shall be
effective 3 months after reception of a registered letter sent by the aggrieved
party specifying the reasons for complaint, unless the defaulting party has
contracted its obligations or proven the fault was a case of `force majeure'
within this time frame.

The possibility of termination shall not exempt the defaulting party from
fulfilling its contracted obligations under this agreement prior to the
effective time of termination. In addition to any other damages suffered by the
non-defaulting party, the defaulting party shall be liable for any harm suffered
by the non-defaulting party due to the early termination of this agreement.

ANNEX 1:
Initial Research Program

ANNEX 2:
Resources and Budget

SIGNATURES :

Dipartimento Di Biologia Sperimentale

By: /s/Giovanni Bioggio
   --------------------------
Prof. Giovanni Biggio, Director

NOVIRIO SARL

By: /s/Bruno Lucidi
   ---------------------------
Bruno Lucidi, President and CEO

                                      -9-

<PAGE>

                                     ANNEX 1

                                RESEARCH PROGRAM

SCREENING OF CANDIDATE ENTITIES FOR ANTIVIRAL ACTIVITY [**].

       In the past years, the division of microbiology in the department of
       experimental biology has established several research collaborations
       which have resulted in a portfolio of 3,500 chemically synthesized
       compounds and a certain number of natural products. The division of
       microbiology will screen part of this pipeline for possible activity
       [**]. In addition, screening of compounds submitted directly by Novirio
       Pharmaceuticals will also be tested in the facility.

RATIONAL DRUG DISCOVERY [**].

       This research will entail structure activity relationship of selected
       compounds and molecular modelization of the complex 'enzyme-inhibitor' in
       order to rationalize drug synthesis. Pre-clinical studies of compounds
       will be performed [**] The classes of possible chemical entities to be
       develop include:

                                   [**]ANNEX 2

                                     BUDGET

For the implementation of the Co-operative activity, NOVIRIO SARL commits to
allocate the financial resources detailed in the Table, while the Dipartimento
di Biologia Sperimentale agrees to provide the structures and the basic
equipment necessary for the research activities described in annex 1.

Expenses [**] concerning the [**], will be covered by NOVIRIO SARL directly.
As for the screening activity and the research & development activity, every
year NOVIRIO SARL will pay the Dipartimento de Biologia Sperimentale the sums
shown in the Table, pending continuation of the research program as defined in
the agreement. The use of these proceeds will be regulated by the administrative
rules of the University of Cagliari. The annual budget will be divided into [**]
payments at the beginning of each [**]. The surplus of each term can be used in
the next term. The related statements of an account will be submitted to NOVIRIO
SARL at the end of each term, within and not later than [**] after the end of
the term.

Expenses for the acquisition of the following goods are allowed:

       - Equipment costing not more than [**] Lira altogether; Maintenance of
         equipment;

       - Consumer goods;

       - [**] to be reimbursed by NOVIRIO SARL upon receipt of original invoice;

       - Publication of papers in scientific journals and acquisition of
         reprints which are associated to the study or NOVIRIO;

       - Fees given to temporary personnel (external consultants)

                                      -10-

<PAGE>

                                     Annex 2

BUDGET FROM DECEMBER 1998 UNTIL 2002 - COOPERATIVE LABORATORY - CAGLLARI (ITALY)

<TABLE>
<CAPTION>
        (IT LIRA)                [**]       [**]      [**]       [**]       [**]       TOTAL
--------------------------     --------   --------   ------    --------   --------   ---------
<S>                            <C>        <C>        <C>       <C>        <C>        <C>
Cost of personnel (loaded)       [**]       [**]      [**]       [**]       [**]        [**]
Research scientist senior        [**]       [**]      [**]       [**]       [**]        [**]

General expenses                            [**]      [**]       [**]       [**]        [**]

Research & Dvpt costs                       [**]      [**]       [**]       [**]        [**]
Screening costs                             [**]      [**]       [**]       [**]        [**]

Total                            [**]       [**]      [**]       [**]       [**]        [**]
</TABLE>

Cost [**] will be handled directly by Novirio.

Other Costs should be wired by quarter in advance and consolidated yearly, last
quarter. Payments will be made in advance quarterly and expenses monitored and
reported to Novirio on a regular basis quarterly.