Why Auxilium Pharmaceuticals Inc. Shares Spiked Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Auxilium Pharmaceuticals , a specialty biopharmaceutical company with a focus on developing therapies to treat urologic and sexual health disorders, jumped as much as 14% after announcing the approval of Xiaflex by the Food and Drug Administration.

So what: According to Auxilium's mid-day press release, Xiaflex has been approved with the additional indication of treating Peyronie's disease, a curvature deformity of the penis that is greater than 30 degrees. Auxilium notes that somewhere in the neighborhood of 65,000 to 120,000 cases of Peyronie's disease are reported annually, but few cases are actually treated and many go undiagnosed. Xiaflex is also approved to treat Dupuytren's contracture patients with a palpable cord.

Now what: Today's approval is a nice boost for Auxilium, but you can tell by the subdued reaction in shares which have given up some of their early gains that this was an expected approval. The good news is that Xiaflex is going to be the only FDA-approved treatment for Peyronie's Disease, so it'll corner all market share there. The problem will be in getting more patients diagnosed which will limit the drugs' potential until that happens. Thankfully Auxilium is already profitable and any extra contribution from the treatment of Peyronie's disease will almost assuredly go straight to helping its profitability. At just 18 times forward earnings, I'd say this is a relatively inexpensive and innovative specialty biopharmaceutical company worth keeping an eye on!