Watson said that the FDA improperly denied the company's shared exclusivity on the generic version despite Watson directly following directions received from the regulator.

As a result of the FDA's decision, approval could be delayed for up to six months, Watson said.

Watson planned to launch its generic version of Takeda Pharmaceutical Co Ltd's Actos on August 17 after a 2010 settlement with the Japanese drugmaker.

Takeda also granted licenses to Mylan Inc and India's Ranbaxy Laboratories at that time to start marketing generic Actos on August 17.

The first company that files for approval of a generic version of an off-patent drug typically gets marketing exclusivity for 180 days.

During the 2010 settlement, Takeda said Mylan, Watson and Ranbaxy were the first to file for generic Actos.

"We believe that we have sound arguments that refute FDA's position and will seek the court's intervention to enable approval," Watson CEO Paul Bisaro said in a statement.

An FDA spokeswoman said the agency would not comment on ongoing litigation.

Actos, which belongs to the same drug class as GlaxoSmithKline's Avandia, had total U.S. sales of about $2.7 billion for the twelve months ending May 31, Watson said, quoting IMS Health data.

Watson said that it remains confident of achieving its recently-disclosed forecast for 2012, even if the FDA does not approve its generic Actos within the expected time frame, citing improved market conditions for certain generic drugs and a favorable FDA decision on another product.

Watson in July raised its 2012 earnings forecast to between $5.65 and $5.85 per share, up from its prior view of between $5.55 and $5.80.

The generic drugs industry, which has seen extensive consolidation in the recent past, is expected to see big gains as several top-selling pharmaceutical drugs lose their patent protection and governments across the developed economies try to cut down healthcare costs by focusing on cheaper generics.

Shares of Watson, which is acquiring Swiss generic drug firm Actavis Group for at least 4.25 billion euros ($5.60 billion), were down nearly 1 percent at $79.39 in morning trade on the New York Stock Exchange on Wednesday morning.

(Reporting by Esha Dey in Bangalore and Anna Yukhananov in Washington; Editing by Rodney Joyce, Supriya Kurane)

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