Updated from 2:39 p.m. EST

With Monday's $68 billion bid to acquire Wyeth ( WYE), pharmaceutical giant Pfizer ( PFE) is setting itself up to potentially dominate the Alzheimer's disease treatment market for years to come. But in making such a big bet on one of society's most pressing unmet medical needs, the pharmaceutical giant may also face increased government scrutiny and possibly some resistance from its key partners.

Pfizer and the Japanese drug maker Eisai, currently co-market Aricept, the leading Alzheimer's drug today with worldwide sales of more than $2 billion.

But Aricept loses patent protection at the end of next year, which is one reason why Pfizer has decided to invest heavily in new Alzheimer's drug research.

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Thomas P. Au:
The deal makes sense.

Last September, Pfizer acquired worldwide commercial rights to Dimebon, an experimental Alzheimer's drug currently in phase III studies. Pfizer paid Medivation ( MDVN), Dimebon's owner, $225 million upfront for the rights, making it one of the largest drug partnership deals of 2008.

Pfizer also has four Alzheimer's drugs in its own pipeline, most of which are in the early stages of clinical trials. This includes an experimental Alzheimer's drug acquired in 2006 when Pfizer bought privately held Rinat Neuroscience.

Wyeth has 10 Alzheimer's drugs in clinical trials, both internally and through partnerships, the most important of which is with Irish drug maker Elan ( ELN). The two companies share development efforts and marketing rights to bapineuzumab, which is being studied in four phase III clinical trials.

If the acquisition of Wyeth announced Monday closes as is, Pfizer would boost its Alzheimer's drug pipeline from five drugs in clinical trials to 15, including two of the four drugs currently in pivotal phase III studies. ( Eli Lilly ( LLY) and Baxter ( BAX) own the other two phase III Alzheimer's drugs.)

Any new drug that could potentially stop or even reverse the loss of memory or cognitive decline that makes Alzheimer's such a devastating disease would be a mega-blockbuster. Actual sales estimates vary and are conditional on the efficacy and safety profile of the drug, but it's not out of bounds to forecast a groundbreaking Alzheimer's drug achieving peak sales of well over $10 billion, perhaps even $20 billion a year.

Pfizer's cholesterol drug Lipitor, with $13 billion a year in sales, loses patent protection in 2011. If Pfizer were to hit it big with a groundbreaking Alzheimer's drug, the company and its investors would find it a lot easier to forget about lost Lipitor sales.

Before Pfizer can start counting new Alzheimer's revenue, the company faces a host of challenges, not the least of which is waiting to see how many, if any, of these experimental Alzheimer's drugs will actually wind up working.

Even before that, Pfizer could face scrutiny from the Federal Trade Commission, owing to potential antitrust issues arising from amassing such a large portfolio of Alzheimer's drugs. This could lead to Pfizer having to divest some of its Alzheimer's assets, says Jack Walsh, a commercial litigator with the law firm Lathrop & Gage in St. Louis, Mo.

Pfizer spokesman Jack Cox said, "We can't speculate on the actions of regulators, but we recognize that this is a large, complex transaction. We will work closely with the regulatory bodies to obtain the necessary clearances."

And Pfizer may have a tricky time managing relationships with its two main Alzheimer's partners - Medivation and Elan -- both of which will want to be seen as a priority over the other when it comes to Pfizer's time and financial commitment.

Pfizer singled out bapineuzumab in its press release discussing the Wyeth acquisition and also talked about the importance of the drug and Alzheimer's, in general, on its Monday conference calls.

Corey Davis, drug analyst at Natixis Bleichroeder, says this was likely Pfizer trying to ease any misgivings Elan may have, especially given Pfizer's existing commitment to Medivation.

"The fact that Pfizer specifically talked about bapineuzumab was probably a signal to Elan that Pfizer intends to maintain Wyeth's investment in the drug," said Davis, who covers Elan with a buy rating.

But if Pfizer was sending the love to Elan on Monday, it wasn't necessarily reciprocated.

Elan spokeswoman Mary Stutts said the company expects a federal antitrust review of the Pfizer-Wyeth deal, particularly in terms of the Alzheimer's assets, and that until that review is completed, Elan is taking a wait and see attitude.

"We cannot assume at this point that Pfizer will be Elan's partner for bapineuzumab," said Stutts.

She added that the current contract between Elan and Wyeth for bapineuzumab and a second Alzheimer's drug, ACC-001, does include change of control provisions. Stutts would not elaborate on the details of those provisions.

Doug Petkus, a spokesman for Wyeth, said the focus of both Wyeth and Pfizer continues to be on Alzheimer's research, including bapineuzumab, but he would not say what ultimately happens to the relationship with Elan if and when Pfizer acquires Wyeth.

Data from a phase II study of bapineuzumab, presented last year, raised doubts about the drug's efficacy and safety. While Elan has moved aggressively to enroll patients in two U.S.-based phase III clinical trials, Wyeth has had problems enrolling patients in two international studies due to safety concerns raised primarily by regulators in Europe.

Natixis analyst Davis believes there is little chance that Pfizer will decide to drop bapineuzumab altogether. "The phase III studies are pretty much on auto-pilot now, so I don't think Pfizer has much incentive to make major changes."

Medivation CEO David Hung says his company's partnership with Pfizer remains unchanged.

"We have not been told of any changes, so I assume that we're on track. The partnership for Dimebon has gone very well and Pfizer speaks enthusiastically about the drug. Alzheimer's is definitely an area where Pfizer is committed to investing a lot of resources."

Pfizer shares closed Monday down 10% to $15.65 on concerns that the Wyeth acquisition would not generate enough new revenue and growth to make up for shortfalls of both anticipated in the coming years. Shares closed up 1.1% to $15.82 Tuesday.

Adam Feuerstein writes regularly for TheStreet.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.