Eli Lilly (NYSE:LLY) jumped on the oral-drug-for-rheumatoid-arthritis bandwagon yesterday. Joining Pfizer (NYSE:PFE), Rigel Pharmaceuticals, and Lexicon Pharmaceuticals, Eli Lilly licensed a phase 2 drug, INCB28050, from Incyte (NASDAQ:INCY).

Incyte is due $90 million upfront and there's potential for another $665 million in milestone and double-digit royalty payments that could get as high as 20% if the drug is a commercial success.

That's a substantial payout for a drug that hasn't yet proven itself in phase 2 trials, but not all that surprising considering that the rheumatoid arthritis market is huge. One reason: The major competition -- Abbott Labs' (NYSE:ABT) Humira, Johnson & Johnson's (NYSE: JNJ) and Merck's (NYSE:MRK) Remicade, and Pfizer's (NYSE:PFE) and Amgen's (NASDAQ:AMGN) Enbrel -- all have to be injected or infused. An oral medication only needs to work as well and be as safe to grab a substantial chunk of the market.

Lilly is taking a bit of a risk at being a latecomer to the party; both Pfizer's CP-690,550 and Rigel's R788 have completed phase 2 trials. Nevertheless, there's no guarantee that they'll make it through the clinical trial process, or past the Food and Drug Administration, so it's still possible for INCB28050 to be the first to market.

For Incyte, much of the value of the company is tied up in its most advanced drug, INCB18424. It licensed the ex-U.S. rights to Novartis last month. The partnership with Lilly may turn out to be fruitful, but investors will have to wait a while to see their oral rheumatoid arthritis drug on the market.

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