UPDATE 1-Teva, Glaxo settle lawsuit over diabetes drugs

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NEW YORK, Sept 27 (Reuters) - Teva Pharmaceutical Industries Ltd (TEVA.O) said on Thursday it reached a settlement of a lawsuit with GlaxoSmithKline Plc (GSK.L) that will allow it to sell generic versions of three Glaxo diabetes drugs in the United States beginning in 2012.

The drugs for type 2 diabetes, the most common form of the disease, are Glaxo's widely used Avandia and two products that combine Avandia with with other common diabetes treatments -- Avandamet and Avandaryl.

Terms of the settlement that gives Teva license to sell the drugs from late in the first quarter of 2012 are confidential, Teva said.

Avandamet combines Avandia with metformin, while Avandaryl combines Avandia with glimepiride, from a class of diabetes drugs called sulfonylureas.

Avandia, known chemically as rosiglitazone, has seen sales and new prescriptions slip in recent months amid fears it may increase heart attack risks.

The medicine had global sales of $3.24 billion last year but has been losing ground to rival Actos, sold by Japan's Takeda Pharmaceutical Co (4502.T), and newer diabetes medicines, such as Merck & Co's (MRK.N) Januvia. (Reporting by Bill Berkrot, editing by Tim Dobbyn)