UPDATE 2-Auxilium hand drug meets all goals in key trials

(Adds analyst comment, updates share move)

By Bill Berkrot

NEW YORK, June 3 (Reuters) - A drug for a debilitating hand condition being developed by Auxilium Pharmaceuticals Inc (AUXL.O) was highly effective in a pair of pivotal clinical trials, and the company said on Tuesday that it plans to seek U.S. approval of the treatment in early 2009.

Auxilium shares, which have doubled over the past 12 months on investor expectations for the drug, initially fell after the company also reported a small incidence of tendon injuries. The shares later reversed course and rose about 4 percent.

Auxilium said its experimental drug Xiaflex for Dupuytren's contracture met the primary goal and all 26 secondary goals of the phase 3 studies.

"We hit every single one of them at very substantial statistical significance," Auxilium Chief Executive Armando Anido said in an interview.

"We believe this is company transforming product," added Anido, who said Xiaflex could become a "greater than $1 billion a year opportunity."

Dupuytren's contracture is a hand deformity in which the connective tissue under the skin of the palm contracts and toughens eventually pulling fingers into a bent position from which they can no longer straighten. It can make simple maneuvers such as retrieving objects from a pocket, putting on gloves or holding tools or sporting equipment very difficult.

"The data should support approval and paint a clinical profile of a product that should become an attractive first-line option for the 140,000 U.S. patients who seek treatment each year," Cowen and Co analyst Leland Gershell wrote in a research note.

He forecast peak annual U.S. sales of $400 million.

Xiaflex, known chemically as clostridial collagenase, is administered by injection into the affected joints, weakening the hardened buildup along the tendons after which fingers can be manipulated back into near normal function.

It would be a welcome alternative to surgery, which has limited results, a long recovery time and many potential complications, researchers said.

"The only successful treatment has been an operation and the operation is substantial surgery," said Dr Lawrence Hurst, chairman of the department of hand surgery at the State University of New York at Stony Brook and a lead investigator of one of the trials.

"This is a substantial step forward," Hurst said of Xiaflex treatment. "Now you have a tool which can allow you to correct this in the vast percentage of patients without an operation.

"It is clearly going to be an option that patients are going to want to use and a lot of them are going to be successfully treated with this," Hurst said.

Investors were initially spooked by the reports of tendon injuries, Roth Capital Partners analyst Greg Gust said.

"This is actually the first time that the company has publicly published and acknowledged the incidence of tendon rupture and other tendon injuries," said Gust, who has a "sell" rating on the stock.

While he said the drug's efficacy was "almost beyond question," he added, "I'm a lot less less confident that it will get approved then I was yesterday."

The primary goal of the studies was a reduction of the angle of joint contracture to less than 5 degrees of normal, or virtually back to fully straight.

In the larger 306-patient study, 64 percent of those who received Xiaflex injections achieved the primary goal compared with just 6.8 percent of patients who got a placebo.

The average percent of improvement in contracture from baseline was 79.3 percent, with Xiaflex compared with 8.6 percent in the placebo group.

In a separate, much smaller 66-patient study, 44.4 percent of Xiaflex patients reached less than 5 degrees of normal compared with 4.8 percent of patients on placebo.

Patients in the studies will be followed for a year, the company said.

The most common adverse side effects were pain, swelling, bruising and itching at the injection site.

"The primary group of adverse events are very much trivial," Hurst said, adding he expects Xiaflex will be approved.

The company also tallied data of serious side effects from a larger group of studies involving more than 2,000 Xiaflex injections given to about 850 patients. It included three confirmed tendon ruptures, or a rate of 0.14 percent per injection, one ligament injury and one potentially serious blood clot.

Shares of Auxilium were up $1.22 to $32.75 on Nasdaq. (Additional reporting by Lewis Krauskopf; editing by Dave Zimmerman and Carol Bishopric)