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.