Biotech investors like to dream big. And right now, there's no bigger dream than owning stock in the first company to develop a truly effective drug against Alzheimer's disease.

A new drug for Alzheimer's -- one that can stop or even reverse the insidious mind-destroying course of the disease -- is the biggest unclaimed prize in biotech. Such a drug will generate billions of dollars in sales for the company that develops it.

As for the investors in that company, well, need I say more?

The numbers tell the story: Between 4 million and 5 million people in the U.S. are diagnosed with Alzheimer's, a figure that could triple by the middle of this century as baby boomers (and the rest of us) age and live longer.

Many baby boomers are now spending a fortune caring for parents with Alzheimer's. Tomorrow, the boomers themselves will be facing the tragedy of the disease, and their kids will bear the costs -- which are enormous. The Alzheimer's Association estimates direct and indirect costs of the disease now amount to more than $148 billion.

Aricept, the leading Alzheimer's drug today, generates about $1 billion in sales for its owners Esai and Pfizer ( PFE). But it's only minimally effective. At best, it slows the rate at which Alzheimer's destroys the ability to think, to remember, to take care of one's self.

To watch Janet Alvarez's video take of this column, click here .

Aricept and the other existing Alzheimer's drugs can't prevent the disease, nor can they reverse or modify the damage done. Therein lies the hope for companies with new Alzheimer's drugs in their pipelines. It's not hard to envision such a "disease-modifying" Alzheimer's drug generating $5 billion to $10 billion in sales or more on its own.

Of course, many investors have already clued into this looming epidemic and are placing bets on an eventual winner. Elan Pharmaceuticals ( ELN) is up almost 60% this year, trading near its 52-week high, because of all the excitement around an experimental Alzheimer's disease drug in development with partner Wyeth ( WYE).

As noted recently in The New York Times, Wyeth is devoting considerable research and development efforts to finding the next big Alzheimer's drug. Eli Lilly ( LLY), Pfizer and Sanofi-Aventis ( SNY) are among the other Big Pharma players tackling the problem.

And biotech is well-represented in the race, too: Myriad Genetics ( MYGN), Medivation ( MDVN), Targacept ( TRGT) and Cortex Pharmaceuticals ( COR) are just some of the smaller companies with new Alzheimer's drugs in development.

To help investors track the market, I compiled a list of companies with Alzheimer's drugs in their R&D pipelines. The list is fairly comprehensive, but generally excludes companies with drugs that haven't yet reached human clinical trials.

Looking ahead to 2008, the biggest biotech event will be the unveiling of clinical data from a phase II study of bapineuzumab, the aforementioned drug being developed by Elan and Wyeth. Last month, the companies announced a decision to move the drug into phase III studies. The phase II study of bapineuzumab continues, with data likely ready for presentation at a medical meeting in the first half of 2008.

There is a lot of buzz about bapineuzumab but so far very little data (publicly available, at least) to gauge the drug's true potential. Elan's stock price already reflects a good amount of optimism for the drug, so a phase II data presentation shapes up to be one of those huge stock-moving catalysts that biotech investors crave.

(For an explanation of how bapineuzumab works, check out this previous column. And for a good story on the science behind the newest Alzheimer's disease research, check out this article in Time.)

Alzheimer's Disease Drugs in Development
Company Drug Phase Disease Target
Neurochem Alzhemed III Beta Amyloid
Myriad Genetics Flurizan III gamma secretase
Sanofi-Aventis Xaliproden III serotonin 5HT-1 receptor
Elan/Wyeth Bapineuzumab II/III Beta Amyloid
Elan/Wyeth ACC-001 II Beta Amyloid
Targacept/Astrazeneca TC-1734 (AZD3480) II nicotinic acetycholine receptors
Cortex Pharmaceuticals CX717 (Ampakine) II AMPA glutumate receptor
Medivation Dimebon II/III multiple
Wyeth lecozotan SR II serotonin 5HT-1 receptor
Eli Lilly LY450139 II/III gamma secretase
Memory Pharmaceuticals MEM 1003 II calcium channel
Memory Pharmaceuticals/Roche MEM 3454 II nicotinic acetycholine receptor
Prana PBT-2 II metal ions
Epix Pharmaceuticals PRX-03140 II serotonin 5HT-4 receptor
Sanofi-Aventis SL-65.0155 II serotonin 5HT-4 receptor
Transition Therapeutics ALD-103 I Beta Amyloid
Torrey Pines NGX267 I muscarinic acetychloine receptor
Pfizer RN1219 I Beta Amyloid

Next year also delivers make-or-break news for Myriad Genetics and its Alzheimer's drug Flurizan in the form of 18-month efficacy results from an ongoing phase III study.

The problem with investing in Alzheimer's drug research is that the early- and mid-stage data are often not very good predictors for how a drug will ultimately perform in large, phase III studies. This can present a dilemma for investors (and commentators, like me) who worship full-time at the Church of Biotech Fundamentalism. Without good clinical data to evaluate, how does one pick which Alzheimer's company to bet on?

Frankly, I believe many investors are winging it right now. They're making guesses -- hopefully, educated ones -- but at this point, I think it's too difficult to say with any certainty whether bapineuzumab, Flurizan, or any other Alzheimer's drug will succeed.

But the size of the Alzheimer's prize is enough to justify the risk in a well-diversified biotech portfolio.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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