If past experience is anything to go by, the healthcare industry could be on the brink of a new wave of consolidation.

When earnings have come under pressure, companies have often looked to a merger or acquisition to keep producing the robust results that investors have come to expect from them. And with the big pharmaceuticals companies facing the toughest environment in years, many investment bankers believe this time will be no different.

A number of large pharmaceuticals companies are reeling from the effects of expired patents on blockbuster drugs - which has often been the spark for mergers and acquisitions in the past.

Bristol-Myers Squibb, Merck and Eli Lilly are all likely to record unimpressive earnings this year as they begin to face generic competition on top-selling medicines.

On the other side of the business, the industry's research labs are going through a rough patch in terms of producing new medicines, which is putting even more pressure on earnings.

Meanwhile, political pressure, especially in the US, is limiting the scope for price increases - another traditional tactic for boosting earnings when sales growth is under pressure.

The combination of these factors has prompted speculation that the industry's big players will have to embark on a new round of mergers to secure buoyant earnings growth. And having seen the deal-flow dry up in many other industries, investment banks are hoping that healthcare will buoy their own businesses.

"If you look at the pipelines of many of these companies, there is very little in there that is going to make waves," says a senior investment banker in London. "I don't know who will be the first to move, but when one does it could start a flurry."

Top of the list of companies expected to be involved in any new round of consolidation is Bristol-Myers Squibb, the venerable US pharmaceuticals group.

By any standards, Bristol has had a dismal six months. The company lost a number of bitter legal battles over the patents on top-selling medicines.

Meanwhile, one of its most promising new drugs, Vanlev, for hypertension, provided only disappointing results in clinical trials. Earlier this month, it admitted profits this year could be up to 45 per cent below initial forecasts.

Some analysts believe the current management has only six months to show it can turn the company around before it will be acquired.

The most widely tipped bidder is Novartis, the Swiss group which has made no secret of its ambition to expand in the US and will need a large salesforce to push new drugs, such as its Cox-189 painkiller. Other possible acquirers include Pharmacia, GlaxoSmithKline and Wyeth.

Nor is the potential deal-making confined to the pharmaceuticals sector. The US biotechnology sector saw a spate of acquisitions at the end of last year as companies, such as Amgen, took advantage of their highly valued stock to expand their product portfolio.

Possible deals this year could involve Celltech, the UK company, which many observers believe will be acquired if it does not buy companies to build up a larger research operation of its own.

Yet, despite the predictions, a new round of mergers would face several obstacles. For a start, there could be significant anti-trust problems. Although no company has more than a 10 per cent share of the prescription drug business, several already have near-dominant positions in certain therapeutic categories, which would set alarm bells ringing at the regulatory authorities if they tried to grow bigger through acquisition.

The nature of the problems facing potential targets could stifle potential deals. Given that a number of companies have weak pipelines of new products, that does not make them very attractive to rivals which are also under pressure to pep up their own research.

Potential bidders would also have to overcome considerable investor scepticism about mergers.

Take the case of GSK, the product of a merger last year between Glaxo Wellcome and SmithKline Beecham. The combined group has produced strong results, boosting earnings by 19 per cent last year, and has proved that size matters in marketing by winning a string of deals to co-market the products of other companies.

However, despite these figures, the group's shares currently trade at a discount of nearly 20 per cent to the rest of the sector on a price/earnings basis. And one of the main reasons is that investors have yet to be convinced GSK can make its enlarged research operations work. "On the benefits to research of the merger, the jury is still out," says Michael King at West LB Panmure.

A series of cancelled research projects since the merger have aggravated fears that large companies can smother the innovation that is central to producing new medicines.

Most industry executives agree that size can be an advantage early on in the research process when huge computers are used to search for new drug targets. And at the final stage of clinical trials involving thousands of people, a big organisation is an advantage.

However, there is no consensus within the industry about the drug discovery process, where smaller biotechnology companies have often done better that the big pharmaceuticals groups in recent years.

"It is still not clear yet whether scale is the best way to enhance creativity in the middle part of the research process," says Alastair Flanagan, vice-president at the Boston Consulting Group in London.

Most of all, bankers point out, any prospective deals will have to overcome the "people" issues that are often the biggest obstacle. This is especially true in the biotechnology sector where many companies are still run by the former academics who founded them.

Yet it is also a feature of the pharmaceuticals business. At Bristol-Myers Squibb, for example, Peter Dolan only took over as chairman last year. A successful suitor will probably have to persuade the 46-year-old to step aside before the deal can go ahead.

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