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FRIDLEY, MINNESOTA– Medtronic Inc.’s massive recall of its Sprint Fidelis leads has already cost the company big in legal bills, product sales and market value. But the worse may be yet to come, not only for the medical device giant, but the industry as a whole.

A report by UBS Investment Research Monday said lead failures could accelerate over time, citing independent studies that predict failure rates could hit 30 percent by four years. Medtronic’s own data suggests a 3 percent failure rate at three years. Leads are wires that doctor snake through veins that connect the battery of an implantable cardioverter defibrillator (ICD) to the heart. An ICD is a device that detects abnormal heart beats and shocks the heart back into rhythm.

“Fidelis may cast a long shadow” over the $5 billion ICD market, the report said.

Interestingly enough, one study, called Altitude, says healthy patients are more at risk because they live longer and thus more vulnerable to problems like lead failure, making the risk/reward scenario less appealing to patients who receive ICDs.

The report makes one more big point: “Experience with Fidelis may support tougher regulatory process,” especially with a type of approval that the Food and Drug Administration almost always grants to a Class III (riskiest) device: pre-market approval (PMA) supplements.

The FDA has already made it considerably more difficult for companies to win approval for less riskier Class I and II devices, said Mark DuVal, president of DuVal & Associates, a Minneapolis-based law firm that specializes in the FDA. By requiring more testing and data and thus delaying decisions, the FDA has thrown enormous obstacles for time- and cash-strapped companies to get their products to market, he said.

So far, most of the industry’s attention has focused on the 510(k), a 90-day review period in which companies primarily must prove to the FDA that a similar device already exists on the market. Such devices feature only incremental improvements on earlier models and thus are held to lower regulatory requirements. By contrast, companies that develop truly unique and breakthrough devices must gain PMA approvals, the gold standard for device regulation.

Yet the FDA, urged by Congress, has taken a harder line on 510(k)s, DuVal said. Which makes it only a matter of time before the FDA, wary of another Sprint Fidelis debacle, sets its sights on the PMA supplements, the UBS report says.

Like 510(k)s, the FDA grants PMA supplement approval to companies that offer “minor changes” to a PMA approved device, such as design, software, sterilization, or labeling. Under PMA supplements, the FDA does not require the company to conduct additional clinical testing.

From 2003 to 2007, the FDA approved 85 percent of all Class III device PMA supplement requests, compared to 75 percent of original PMA applications and 65 percent of Class III applications through the 510(k), according to recent reports by the Government Accountability Office (GAO) the investigative arm of Congress.

In other words, it’s much easier to obtain a PMA supplement for a Class III device than any other Class III-related application. While not focusing on PMA supplements, the GAO reports strongly urge the FDA to steer Class III devices away from the 510(k).

Which brings us back to Sprint Fidelis. Whether the FDA should have allowed Medtronic to seek a PMA supplement is debatable. When Medtronic first rolled out the wire, the company hailed it as next generation technology, a lead thinner and easier to implant than its older Sprint Quattro models. But does those improvements really qualify as “minor changes?”

Of course, this debate would be mute if Sprint Fidelis had not failed so spectacularly. In 2007, Medtronic stopped selling the lead after reports the wire broke apart inside the body. Countless lawsuits from investors and patients followed, culminating in a major Supreme Court decision that ruled Medtronic could not be held liable for a device that met the FDA’s toughest regulatory standards.

But Sprint Fidelis was approved under a PMA supplement, not a new PMA, meaning regulators were mostly relying on earlier work they did with Quattro.

Earlier this year, Medtronic told doctors that lead failures may have factored into at least 13 deaths. About 260,000 Sprint Fidelis leads have been implanted in patients in the United States, with 143,000 still active.

UBS says tougher FDA scrutiny will hurt industry profits because companies count on income from PMA supplements to offset pricing weakness in older devices. In other words, the companies charge more for a newer device, even one with “minor changes,” than earlier versions.

Bigwigs like Medtronic and Boston Scientific Corp., which had its own recall problems, will weather the storm, DuVal said. Any FDA crackdown on the 510(k) and PMA supplements will mostly hurt start-up companies because they don’t have big financial resources. And that will hurt innovation, he said.

Besides, companies already spent enormous time and money to get PMA approvals, the toughest standards laid down by the FDA. It doesn’t make sense for companies to run the entire FDA gauntlet again for incremental changes to these devices, DuVal said.

But again, how do you define “incremental?” Or “minor changes?”