Like burgers at

McDonald's

, biotech IPOs are coming out of investment banks at a sizzling rate these days.

IPO Fever

IPO Market Sees an August Revival

And fund managers are gobbling them up, placing bets on what they hope will be the next

Amgen

(AMGN) - Get Report

or

Immunex

(IMNX)

. Or perhaps they just hope these stocks will fly when they hit the market, making for a quick, tidy profit.

For the most part, investors have had reason to be pleased. Shares in the latest batch of biotech IPOs are mostly trading higher than their offering prices.

Lion Bioscience

(LEON)

, a German genetic toolkit company, opened Friday at 39 15/16 and promptly surged 33%, to 53.

But no one is expecting the party to last, especially considering the vast supply of similar companies, which naturally tends to knock down the price of all but the very best. A year from now, some fund managers say, this crop of biotechs could resemble today's flopped Internet darlings.

Flooding the Place

"A year from now, the majority will be below their offering prices," says Laurence Blumberg, principal of

Blumberg Capital

, a New York fund that actively trades biotech stocks. "You can't have 20 genomic companies all doing the same things and winning."

But so far, of the 44 or so "life science" companies to list since biotech shares came back to life last November, most are trading above water, or higher than their offering price. For some, share prices are many times higher.

Take

Exelixis

(EXEL) - Get Report

. This genetic analysis company went public April 10 at $13 a share. It now trades around 38, nearly triple its offering price. Similarly,

Orchid Biosciences

(ORCH)

, another gene analysis company, went public on May 4 for $8 a share and now trades around 39 1/2, almost a fivefold gain.

Praecis Pharmaceuticals

(PRCS)

,

Aclara

(ACLA)

,

Maxygen

(MAXY)

and others also flew out of the gate.

Promises, Promises

That's indicative of the promise that these newly minted companies hold, and there are at least a dozen more set to float. Each aims to be the next

Genentech

(DNA)

, the pioneer of the industry that developed several hugely successful drugs through the intricate science of molecular biology.

These are heady days for the biotech industry. Share prices, while well off all-time highs of early March, are still well up from the doldrums of a year ago. The

Nasdaq Biotech Index

tripled in the last year from 556 to peak at 1619 at the height of the momentum rally, and is now trading at 1165.

A number of factors are driving the gains, everything from low interest rates and a strong economy to startling scientific advances in genetic understanding, such as the mapping of the human genome. And there's plenty of money to fund new companies.

Unfortunately, few will win the game. For investors looking for profit, the most likely bets are those companies that provide products or services to others, such as Lion Biosciences,

Genaissance Pharmaceuticals

(GNSC)

or

Gemini Genomics

(GMNI)

. Companies that develop drugs, like

InterMune

(ITMN)

,

Allos

(ALTH)

and

IntraBiotics

(IBPI)

, are more risky, as drug discovery is fraught with pitfalls.

"This is a business where many more fail than succeed," says Stelios Papadoupoulos, managing director of health care investment banking at

SG Cowen

, which has done a dozen or so biotech IPOs in the last year. Still, with the prospect of steep share gains for promising IPOs, investors are willing to play the risk game.

That wasn't always the case, obviously. And biotech executives are rushing to fill their coffers while the doors to capital are open. According to

Lehman Brothers

, the average biotech IPO since November raised $146 million, a record amount. And on average, shares gained 107% in the aftermarket.

"There's no question that what is going on right now is unsustainable," says Phil Stekl, portfolio manager for the

Millennium Fund

, a new $13.8 billion tech and health care fund managed by

William Blair

in Chicago. "But the underwriters aren't going to stop until they hit the saturation point."

Close to the Customer

Already, there's evidence that fund managers are getting more choosy among the dozens of prospectuses that cross their desk each week. After all, how many genomic toolkit or cancer vaccine companies can the market sustain? The Millennium Fund, says Stekl, bought only a few of the most recent batch of IPOs, including

deCode

(DCGN)

, an Icelandic genetic research company, and the

Medicines

(MDCO) - Get Report

, which has late-stage products close to market.

"We need to be convinced that a company has a defensible niche, and is crucial to its customers. If you take that criteria, you can weed out quite a bit," says Stekl, who says the fund buys mainly as a long-term investment.

But while corporate financiers and investment-bank analysts tout the rosy long-term prospects for their sponsored companies, they recognize that there's a whole lot of flipping going on. That's why funds pressure investment banks for big allocations of IPO stocks.

"It's probably true that most investors buy to flip and not hold," says SG Cowen's Papadoupoulos, referring to the practice of selling the stock within a day or two of its IPO. But he says the practice isn't inherently harmful. "It's good for companies in that they manage to raise money."

And there's no lack of companies to raise money for, says Eric Roberts, Lehman's managing director for health care corporate finance.

"We went through a depressed market for biotech IPOs in recent years, and now there's a bumper crop of companies overripe on the vine," says Roberts. "We should be near the end of the backlog in October."

Roberts says that over a dozen companies have yet to go out, and some experts say a bunch more are expected to raise money, as long as the market stays robust.

Some, like SG Cowen's Papadoupoulos, say it's pretty easy to figure out when the IPO parade will stop. "It's a pretty simple calculus," he says. "The saturation point is reached when the last IPO trades down."