OBJECTIVES: Vildagliptin is an alternative option to glitazones when treatment intensification is required due to loss of glycaemic control. Our analysis compares the clinical and cost-utility effects of these alternative treatments. METHODS: The analysis uses the Novartis 24-week 2354 study results comparing vildagliptin 50mg BID to pioglitazone 30mg qd. The Sheffield Type 2 Diabetes Model, a patient-level disease management model, simulates use of therapies, clinical events, treatment of complications and mortality. Costs, including the £1.13 vildagliptin daily price and £1.20 for pioglitazone, and quality-of-life (QoL) effects, including those related to complications and weight effect of therapies, were aggregated to obtain the incremental cost per QALY. Uncertainty around key parameters, such as  weight effects and long-term HbA1c trends, was explored using probabilistic sensitivity analysis and scenarios. RESULTS: Assuming equal long-term HbA1c trends, the point estimate suggests that vildagliptin is cost effective compared to pioglitazone with a cost saving of £88 and reduction in QALYs of 0.0006.  The marginal net benefit of vildagliptin compared to pioglitazone is £77 (95% C.I. -23 to 177) with a 62% likelihood that vildagliptin is cost effective at a UK notional £20,000 cost/QALY threshold. The main driver is the cheaper cost of vildagliptin. There is a small QALY loss due to fewer CHD events with pioglitazone arising from its superior lipid effects, although this is mitigated by the QALY gain due to the weight neutrality of vildagliptin. The long-term HbA1c trends are highly important but uncertain assumptions, and conclusions about the cost effectiveness could change if evidence for different trends emerged. CONCLUSIONS: The expected differences in lifetime costs and QALYs between vildagliptin and pioglitazone are small, with considerable uncertainty around key parameters. Results suggest a 62% likelihood that vildagliptin is cost effective compared to pioglitazone at a £20,000 cost/QALY threshold assuming similar long-term HbA1c trends.