UPDATE 1-US FDA approves Auxilium drug for hand disease

* Xiaflex seen as alternative to hand surgery

* Shares rise 8.6 percent

LOS ANGELES Feb 2 (Reuters) - The U.S. Food and Drug Administration said on Tuesday it has approved Xiaflex, developed by Auxilium Pharmaceuticals Inc (AUXL.O), for treating a progressive hand disease known as Dupuytren's contracture.

The approval news sent shares of the small biotechnology company up nearly 9 percent.

The condition, which can affect a person's ability to straighten and properly use their fingers, is currently treated with surgery.

Xiaflex works by breaking down the excessive buildup of collagen in the hand.

"Since there are no other nonsurgical alternatives for Dupuytren's contracture, Xiaflex will be an important advance in the management of this disabling condition," Dr. Bob Rappaport, director of the anesthesiology, analgesia, and rheumatology division at the FDA's drug evaluation and research center, said in a statement.

The most common side effects seen in patients treated with the injected drug were fluid build up, swelling, bleeding, and pain in the injected area, the FDA said.

Auxilium and European partner Pfizer Inc (PFE.N) are also studying Xiaflex as a treatment for Peyronie's disease, in which a hard lump forms within the penis, reducing flexibility, thus causing pain and forcing the penis to bend or arc during erection.

Shares of Auxilium, which closed at $28.08 in Nasdaq's regular session, were up 8.6 percent to $30.50 in extended trading. (Reporting by Deena Beasley; Editing by Tim Dobbyn)