UPDATE 1-Nuvo shares surge on FDA pain cream approval

* Knee pain cream to hit U.S. market by early 2010

* Nuvo to receive $15 mln milestone payment

* Shares jump 21.7 percent to 42 Canadian cents

(Adds details and company comments. In U.S. dollars)

TORONTO, Nov 5 (Reuters) - Shares of Nuvo Research (NRI.TO: Quote, Profile, Research) climbed more than 20 percent on Thursday after U.S. regulators approved the Canadian biotech's pain killer cream.

The Toronto-based company said the the U.S. Food and Drug Administration approved its Pennsaid topical solution, a non-steroidal anti-inflammatory drug, used for the treatment of osteoarthritis of the knee.

The U.S. market for that growing sector is estimated to be valued at about $250 million.

The shares rose 21.7 percent to 42 Canadian cents on volume of 26.9 million shares.

Earlier this year, Nuvo signed a U.S. licensing deal with U.S.-based Covidien (COV.N: Quote, Profile, Research) for the treatment. As a result, Nuvo received $10 million in upfront payments from Covidien at that time and will now get another $15 million because of the approval. It could receive up to $100 million more should the treatment reach various sales milestones.

The companies expect to launch the product in the United States in the first half of 2010.

"This gives us the financial resources and the credibility to advance this company forward," said Dan Chicoine, chairman at Nuvo. "Also we are getting a revenue stream that will help us create more (products)." ($1=$1.06 Canadian) (Reporting by Scott Anderson; Editing by Frank McGurty)