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Teva Pharmaceutical Industries Ltd. (TEVA) - Get Teva Pharmaceutical Industries Limited Sponsored ADR Report and Mylan NV (MYL) - Get Mylan N.V. (MYL) Report will probably stay on the M&A sidelines, according to Oppenheimer & Co. analyst Derek Archila.

"Teva is in no shape to be doing any deals and Mylan is still pretty leveraged," Archila said in an interview.

Teva on Aug. 3 cut its full-year guidance and slashed its dividend 75% owing to weaker U.S. markets and the ongoing political turmoil in Venezuela. Interim president and CEO Dr. Yitzhak Peterburg said in the earnings release that Teva experienced accelerated price erosion and lower volume in its U.S. generics business due to "customer consolidation, greater competition as a result of an increase in generic drug approvals by the U.S. Food and Drug Administration, and some new product launches that were either delayed or subjected to more competition."

Peterburg said the company is focused on "meaningful cost reductions, rationalizing our assets and maximizing their value, actively pursuing divestiture opportunities and strengthening our balance sheet."

On Friday, Fitch Ratings downgraded Teva's issuer default rating to 'BBB-' from 'BBB' with a negative outlook, noting that the company is "facing significant operational stress at a time when it needs to reduce debt and leverage" from its acquisition of Allergan plc's (AGN) - Get Allergan plc Report generic drug business for $33.4 billion in cash and $5.4 billion in stock. The deal was completed in August 2016.

Teva's American Depository Receipts closed at $23.75, down 24%, on Thursday. They ended Friday's trading session at $20.60, down 13.3%, and were up 0.3% in after-hours trading.

As of June 30, Teva's debt pile stood at $35.1 billion, compared to $34.6 billion at the end of March.

Mylan, for its part, has total debt of about $14.96 billion as of end-March.

A Mylan representative on Friday referred to the company's commentary on its M&A strategy during its investor day and other presentations. "It has not changed," the representative said.

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At the Barclays Global Healthcare Conference in March, for example, CFO Kenneth Parks said the company plans to continue being a consolidator in the space. "There is always a timing element, which is what assets are available. And sometimes it's a generic asset, sometimes it's other assets," Parks said.

Parks added that Mylan was leaning toward making smaller deals. "We have said very clearly that the big infrastructure-type deals that we've completed, the larger things, like the Abbott EPD acquisition as well as the Meda acquisition, those are things that we don't need to do more of. We're looking now more at adding to the portfolio maybe some bolt-on type acquisitions," he said.

Recent deal activity in the sector include Fresenius SE & Co. KGaA unit Fresenius Kabi's deal in April to acquire Akorn Inc. (AKRX) - Get Akorn, Inc. Report , a Lake Forest, Ill.-based specialty generic pharmaceutical firm, for about $4.3 billion, plus the assumption of approximately $450 million of debt.

With consolidation in the industry likely to continue, potential takeover targets in the long run could include Impax Laboratories Inc. (IPXL) , Lannett Co.  (LCI) - Get Lannett Company, Inc. Report   and Teligent Inc. (TLGT) - Get Teligent, Inc. Report , said Archila, noting that the firms possess unique manufacturing capabilities that make them attractive later down the road.

Specifically, Archila pointed to Teligent's capabilities in topicals and injectables, Lannett's in controlled substances and Impax's in LA oral solid dosage.

Among the potential acquirers are Indian generic manufacturers, who are seeking to gain a foothold in the U.S., he said.

A Lannett representative said the company does not comment on speculation in the market. Representatives for Impax and Teligent were unavailable for comment on Friday.

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