PhageTech Inc. raised C$16 million (US$10 million) in a third round of financing that will be used to move it from scientific research to drug development.

PhageTech, of Montreal, is a privately held antibiotic discovery company focused on bacteriophage genomics.

“The main milestone is to get some of our lead compounds into in vivo models by [the second quarter] 2003,” said President and CEO Dalal Manoli, noting that it will be 2004 before the company is likely to be in clinical trials.

Another PhageTech goal is to start screening against its targets and identify small-molecule inhibitors.

“This financing was raised to give us 30 months,” Manoli said.

Since its founding in 1997, PhageTech has raised C$22.2 million.

The company’s strategy is to reach liquidity in three years with plans of going public ultimately. Growth may occur through mergers and acquisitions to diversify and minimize the risks in drug development. Although Manoli said she would choose whatever makes business sense for the company, she would prefer that PhageTech be the acquirer in such deals.

The company’s work is geared toward discovering a new class of antibiotics important in a time when there is existing and increasing drug resistance. Its goal is to identify and exploit the natural mechanisms developed by bacterial viruses, which are called bacteriophages or phages, to stop the replication of and to kill pathogenic bacteria. The company does this by determining the genetic code of phages that infect and kill disease.

“We are using the phages to tell us which targets to go after, and therefore we are mimicking what nature has done,” Manoli said. “The phages kill bacteria, so our strategy is to determine how they do this and to mimic this in a small molecule.”

Initially, PhageTech will focus on three human pathogens with both medical and economic importance, including Staphlococcus aureus and Streptococcus pneumoniae. Both are Gram-positive bacteria and are causes of both hospital- and community-acquired infections. It also is focusing on Pseudomonas aeruginosa, a Gram-negative bacterial species that the company said causes 10 percent to 20 percent of hospital-acquired infections.

The company was founded by three scientists from McGill University in Montreal Jerry Pelletier, Phillippe Gros and Michael DuBow, from the departments of biochemistry, oncology and microbiology, respectively.

The funding round was led by CDP Capital Technology Ventures (formerly CDP Sofinov), of Montreal. Other new investors were Seaflower Ventures, of Waltham, Mass., and T2C2/Bio, of Montreal. Returning investors were Solidarity Fund QFL, of Montreal; MDS Capital, of Toronto; and GeneChem, of Montreal.