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Healthcare stock movement has been a key story of 2012. These two biotech companies have caught my attention and have significant catalyst moving into the second half of 2012.

Threshold Pharmaceuticals (NASDAQ:THLD) - Threshold is a smaller cap biotech company specializing in cancer therapies currently trading just under $7 a share. The $370 million market cap company has caught some attention recently. The company presented information June 4th at ASCO 2012 on lead candidate drug TH-302 for the treatment of soft tissue sarcoma and advanced leukemia among other cancer indications. The drug targets the low oxygen (hypoxia) signature associated with tumors to provide selectivity of DNA alkylation, preventing cell proliferation.

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Catalyst: The science of TH-302 has attraction in today's oncology climate. The pharmacological mechanism of the drug is seemingly specific to cancer and wide ranging in application and thus far data has shown the drug is well tolerated. ASCO 2012 has cancer in the national spotlight from the market to mainstream media.

The company's pivotal Phase III study for TH-302 in the treatment of soft tissue sarcoma began in September 2011 and is on track to complete enrollment by the end of 2013. In February 2012, THLD and Merck (NYSE:MRK) signed a global agreement to develop and commercialize TH-302, for which it earned a $20 million milestone payment in April.

Most attention for the drug centers around its potential as a pancreatic cancer treatment. Phase IIb results for TH-302/Eli Lilly (NYSE:LLY) Gemzar showed a 39% reduction in cancer progression compared to Gemzar treatment alone - as a driving factor for THLD being undervalued. Sales potential for TH-302 treatment for pancreatic cancer have been estimated at $1.5 billion in the US alone. These driving factors lead Cowen & Co. to declare the stock undervalued in late May.

Questions: Smaller cap companies traditionally have a lower success rate of navigating FDA approval when compared to larger cap companies with more clout and resources. Will the partnership with Merck and studies with larger player's drugs like LLY help support this company through FDA scrutiny? Though TH-302 is currently being studied in a variety of cancer indications, THLD has a very limited pipeline with that being the only drug it currently has in its pipeline. Will the company pour money into development or be a buyout target?

The answer to both these question may be yes. Either way investors are seeing the upside for this stock, with a low float, to reach its target potential of $14.50 within the year.

Bottom Line: Classic biotech speculation has met diverse application potential and data with market buzz making THLD a watch list or buy stock for many.

Auxilium Pharmaceuticals (NASDAQ:AUXL) - This $1.09 billion market cap company is traditionally known for its testosterone replacement therapy Testim, which is marketed globally and co-promoted with GlaxoSmithKline (NYSE:GSK). Investors have been anxious for revenues on its two FDA approved drugs to pour in. Though Low Testosterone, (Low T), affects some 15-20% of men and is growing in everyday media attention so much so that I questioned myself, Testim revenues have had market resistance in competition with Abbot Lab's (NYSE:ABT) Androgel. The company's other key drug, Xiaflex, in development with BioSpecific Technology Corp. (NASDAQ:BSTC), is marketed in the US and Europe with partner Pfizer (NYSE:PFE) as the first non-surgical treatment of Dupuytren's contracture. This disease is indicated by the tightening hand muscles due to collagen build up and affects under 200,000 individuals in the US. Sales of Xiaflex have been paltry thus far generating $60 million falling short of the $500 million potential the drug was once hoped to bring.

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Catalyst: A revision in the company's guidance in late May included increased revenue for Testim and spurred an analyst upgrade from MKM Partners to buy. The company has made moves to increase rebates on the drug and in response, prescriptions are up in turn.

Further, Xiaflex's potential as treatment for a variety of other conditions appears to be coming to fruition. On June 4th, shares opened 20% higher on reported top line Phase III data for Xiaflex as a first in class biologic treatment for Peyronie's disease, a disease caused by the build-up of collagen causing curvature of the penis which is thought to affect 7-10% of males. Data showed the drug, a bacterial derived collagenase enzyme agent, effectively reduced curvature of the penis by over 37%. The day following, Bank of America Merrill Lynch increased its target share price for the stock from $24 to $28.

Future focus is on the expansion of Xiaflex for the treatment of cellulite and as a female I can attest this would be a godsend. A low estimate suggests at least 85% of post-pubescent females have cellulite and spend nearly $3 billion annually on a host of "treatments" according to the American Society of Aesthetic Plastic Surgery, many of which are not FDA approved or effectively supported with science. Top line proof-of-concept results for Xiaflex as a cellulite treatment are expected in Q4 2012.

Questions: Will Testim weather competition from Teva Pharmaceutical's (NYSE:TEVA) Bio-T gel or will it matter? Is the buzz for Xiaflex as a Peyronie's disease treatment enough to support the stock's gains? Thus far the stock has maintained the gains and it's trading at its 52-week high of $22.66. The market seems to be taking a strong position banking on Xiaflex's diversity and management's moves to increase prescriptions with rebates.

Could Xiaflex do for Auxilium what Botox did for Allergan (NYSE:AGN)? Further, could AUXL be a buyout target for an Allergan or a Johnson and Johnson (NYSE:JNJ) if the cellulite treatment data progresses? Lastly, do you have the heart to wait out the speculation and time to see if the cellulite application comes to fruition? If the answer to any of these questions is yes, AUXL could be a nice addition to a portfolio.

Bottom Line: Auxilium has an interesting mix of pipeline application in Xiaflex and management moves with Testim that speculation of a future cellulite treatment might be worth the risk.

Source: Catalyst And Questions For 2 Biotech Movers