There are few truly untapped drug markets out there.

Lupus hasn't seen a new drug developed specifically for it in the last 50 years, although Human Genome Sciences and GlaxoSmithKline are close to getting one approved. Merck (NYSE:MRK), Vertex Pharmaceuticals, and others are trying to crack into the hepatitis C market since the current offerings available from Roche and Merck only cure about half the patients they're used in.

But those are relatively small markets compared to the Alzheimer's disease market. It's likely you know someone who's been diagnosed with it -- my grandmother lived with the disease for years. According to the Alzheimer's Association nearly half a million cases are expected to be diagnosed this year.

Talk to doctors or caregivers and you'll find the current drugs available to treat Alzheimer's disease sometimes work for a while, but they're certainly no cure.

And yet, they're all blockbusters. Aricept, which Pfizer (NYSE:PFE) sells with Eisai, reached the $1-billion-per-year mark years ago. Forest Labs' (NYSE:FRX) Namenda is on pace to be a blockbuster this fiscal year. Novartis' (NYSE:NVS) Exelon and Johnson & Johnson's (NYSE:JNJ) Razadyne aren't bringing home the bacon for their developers, but that's because both have generic competition in the U.S.

Imagine how well a drug that had a major effect on Alzheimer's disease could sell.

Around the corner
A couple of drugs are scheduled to give phase 3 data this year. If positive, they could be the home-run investors and patients are looking for.

Medivation (NASDAQ:MDVN) along with its marketing partner Pfizer, are expecting data for their drug candidate Dimebon in the first half of this year. The trial, dubbed Connection, is testing Dimebon against placebo and should be enough to get the drug approved if it's successful.

If Dimebon only shows a modest effect in Connection, Medivation and Pfizer have a backup plan. The companies have already started two more phase 3 trials -- Contact and Constellation. One is testing Dimebon in combination with Aricept and the other tests its effects in combination with Namenda. If each drug gives a modest effect, it might be just enough to produce decent results.

Later in the year, we should get data from a phase 3 trial for bapineuzumab. Pfizer owns half of the drug, thanks to its acquisition of Wyeth. The other half belongs to a joint venture between Johnson & Johnson and Elan (NYSE:ELN).

The companies had to drop the highest dose of the drug from testing because it seems to be causing a buildup of fluid in the brain. Generally, that's not a good sign since drugs usually have higher efficacy at higher doses. Drugmakers like to work at the highest dose that doesn't cause severe side effects, but for some drugs the efficacy at that level just isn't good enough. We'll know soon enough if that's the case for bapineuzumab.

Tread lightly Fools
The potential rewards are huge, but there's a reason that no one has developed a drug to treat Alzheimer's disease in a meaningful way: it's pretty darn hard.

The last major flop that I can remember came from Myriad Genetics. The drug looked O.K. enough to send through phase 3 testing and the company even convinced Danish drugmaker H. Lundbeck to license the drug just months before the clinical trial results showed that the drug didn't work.

No one wants to be a Lundbeck kind of investor, but it's difficult to handicap drugs for diseases like Alzheimer's and Lupus where many other drugmakers have failed. The best solution is to keep them to a small portion of your portfolio to ensure that any flops -- and there's bound to be some -- don't ruin you.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.