OraPharma

(OPHM)

shares jumped sharply Thursday, marking another biotech IPO success.

Stock in Warminster, Pa.-based OraPharma jumped 14, or 78%, to 32 Thursday afternoon after the shares were priced above-range Wednesday at 18. The gains show that investor demand for stocks in development-stage biotech firms hasn't cooled. That has led biotech observers to debate the quality of recent IPOs and the rally's staying power.

OraPharma's $72 million IPO follows blockbuster biotech fundraisings such as

Abgenix's

(ABGX)

$630 million offering,

Sequenom's

(SQNM)

$157 million IPO and a near billion-dollar deal from

Celera Genomics

(CRA)

, the largest biotech offering so far this year. Corporate financiers say they're working on many more deals, as cash-hungry biotech firms are eager to get their hands on cash while it's easy to do so.

"We're not seeing any flattening out in a sector that has seen a sea change in activity in the last three to six months," said Peter Reikes, head of health care financing for

SG Cowen

, which worked on the Sequenom fundraising and many others, but not OraPharma's. "There's an increasing amount of capital coming into the sector, which is being redeployed from other parts of the economy."

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Flashback?

But OraPharma's gains prompted some investors and analysts to consider the prospect of a repeat of the early 1990s, when the highflying biotech market collapsed after companies rushed to raise money but failed to meet investors' expectations in high-risk drug development.

"We are seeing a lot of marginal companies coming to market," says one biotech analyst who worries that "we could be repeating the same mistakes as six years ago when many companies went public when they weren't ready."

OraPharma, formed in 1996, is typical of biotech companies in that it has no sales, relying on prospects for products in development to win investors. Its lead product is an antibiotic for gum disease called the Minocycline Periodontal Therapeutic System, or MPTS. It filed for

Food and Drug Administration

approval for MPTS in February, says Robert Haddow, OraPharma's controller.

Sanguine Side

Others scoffed at such notions and predicted a continuation of the U.S.-European bull market in biotechs that has seen dozens of such companies multiply in value in recent months.

Bulls say biotech executives have been chastened by past failures and are less likely to mislead investors with rosy claims about drugs in development. Furthermore, they say fundamental understanding of the molecular processes that underlie drug research has taken quantum leaps in the last decade, somewhat reducing the risk of drug development.

"There are some important differences between this timeframe and then," says Mark Augustine, biotech analyst with

U.S. Bancorp Piper Jaffray

, a co-manager with

Gerard Klauer Mattison

of the OraPharma offering, which was underwritten by

Robertson Stephens

. "There are a good many reasons to be optimistic."

Reikes says Cowen, which has long specialized in biotech, is working on "well north of 25 or 30 financings in biotech." Reikes adds that investors are increasingly "able to differentiate" between different kinds of biotech companies.

Acrophobia

Still, some specialist biotech fund managers worry that the market won't be able to distinguish between quality biotechs and me-toos or scientific lightweights if the market begins teetering, a factor that could lead to a wholesale sector selloff that would send biotech executives back to a bleak, underfunded wilderness.

"The run-up has been awfully fast and indiscriminate," says one manager. "It's leaving everyone very uncomfortable because the downturn could be equally indiscriminate."