Medtronic, the world's largest medical-device company, is at a crossroads. It's searching for new products, new leadership and a return to the go-go growth that defined the Fridley-based company for much of the past two or three decades.

The same might be said about the medical-device industry as a whole. One era of revolutionary, lifesaving innovation and wealth creation appears to have ended, and it's not clear if and when another will follow. This has broad implications for Minnesota, where an estimated 35,000 people work for some 500 device companies.

I'm not suggesting the medical-device sector has entered a state of permanent decline. For the time being, most of the established companies still earn fat profits. But while demographics -- aging but longer-living baby boomers -- suggest a ready and steady supply of potential customers, the industry faces growing pressure to prove both the clinical and cost-effectiveness of its products.

Unfortunately, an industry that defined itself with blockbuster product introductions seems to have settled into a period of incremental innovation. A pacemaker that's compatible with MRI scans is nice, but is it really "one of the most important advances in pacing" in more than 25 years, as Medtronic's outgoing CEO claimed last week?

Companies that have products on the market still spend billions on research and development, but it seems to be less about research and more about development -- a focus on features, performance and functionality of existing technologies rather than entirely new ones.

There are sound reasons for this strategy: Entirely new devices or technologies need premarket approval from the Food and Drug Administration, a lengthy and costly process that can entail years of testing.

A much faster path to market -- as few as 90 days -- is through the 510(k) approval process, which only requires companies to show that a new product is similar to one already on the market. An estimated two-thirds of medical devices go this route, which explains why the industry is spooked by the prospect that the FDA may toughen 510(k) requirements. Doing so would completely upend the business plans at most device companies.

David Rhees, a medical historian and executive director of the Bakken Museum, is skeptical of the notion that the device industry has reached a threshold in terms of product innovation. "In the case of pacemakers and electrical stimulation devices, they keep finding more ways to apply the technology," Rhees said. "The more we learn about the body, the more conditions we find it can be applied to, like obesity or depression."

Rhees has a point, but it's also possible to draw parallels between today's medical-device sector and the high-tech industry. Breakthroughs in transistors and integrated circuits in the 1960s ushered in a tremendous period of innovation and wealth creation built almost entirely around a single product, the personal computer. By the early to mid-'90s, however, the PC had become a commodity.

Computermakers increasingly competed on the basis of product features, such as chip speed and price. Ditto for software firms, which tacked gewgaws onto increasingly clumsy programs. Shrinking profit margins and the dominant positions of industry leaders, such as Intel and Microsoft, made it increasingly tough for new entrants to get on the screens of computer users.

What the high-tech industry needed, desperately, was a disruptive technology that would drive further innovation and growth. It arrived in 1995, with the initial public offering of Netscape.

At the risk of oversimplifying, the medical-device industry seems to have reached a similar moment in its evolution. Growth has slowed dramatically, profit margins are likely to shrink further as regulators attack health care costs, and the differences between rival companies' products are increasingly hard to sort out.

Make no mistake, there are disruptive technologies in the sector in areas such as drug-device convergence, nanotechnology and neurostimulation. The rub: A lot of this seems to be happening within development-stage companies, and life for these early-stage companies has never been more difficult.

According to Dow Jones Ventures, the median time from initial funding by investors to a public offering of stock was about three years in 2000. Today it's almost 9.5 years, with still no guarantee that the product will be successful.

That extended timeline is chasing away investors. Venture capital investment in medical devices nationally declined 31 percent in the fourth quarter of 2010, according to the National Venture Capital Association. The consulting firm PwC warned recently that China, India and Brazil will experience the strongest gains in developing next-generation lifesaving products over the next decade.

A shrinking number of start-up companies with potentially disruptive technologies has two effects, neither of them good. It means less competition for established players, and it means fewer opportunities for those established players to acquire exciting technologies already under development.

Instead of buying someone else's research, the big companies may have to ramp up their own efforts. Through much of the 1990s, for example, Medtronic spent about 11 percent of its revenue on research and development. In the past three years, it spent about 9.3 percent.

Shifting more of the R&D budget to researching new products, rather than extending current product lines, may be the best bet the industry could make in terms of propelling the next wave of innovation.

It could also help restore some of the goodwill and trust lost in the wake of recalls, patient deaths and fights with Congress and regulators over things like payments to doctors. And that would be a good thing. • 612-673-1736