OBJECTIVES: Compare the cost-effectiveness of quetiapine extended-release versus olanzapine, in patients with first episode schizophrenia who have failed on generic risperidone. METHODS: A one-year, decision analytic model populated with appropriate published efficacy data together with drug acquisition and resource use costs, was employed to illustrate the possible consequences of treatment with generic risperidone followed by either olanzapine or quetiapine extended-release. The perspective taken was that of the UK National Health Service. The clinical outcomes measured and compared were: discontinuation due to clinical reasons; response; relapse; number of patients effectively managed; and those requiring further intervention. An assumption was made that quetiapine extended-release would deliver the same outcomes as the instant-release formulation in this population. The doses applied (risperidone 3.3mg, olanzapine 15.7mg and quetiapine extended-release 646 mg) were the mean doses observed in the clinical trials. RESULTS: Relative to olanzapine more patients were effectively managed on quetiapine (5%). The total cost per effectively managed patient was estimated to be higher for olanzapine compared to quetiapine (£21,658 and £20,955 respectively). Quetiapine also had fewer patients that: discontinued due to clinical reasons; failed to respond; relapsed; or required additional intervention relative to olanzapine (28%, 5%, 9% and 13% respectively). CONCLUSIONS: Not all atypical-naive patients that receive generic risperidone will tolerate or respond adequately to therapy and for those patients that require subsequent treatment with an atypical antipsychotic, quetiapine extended-release is a cost-effective second-line treatment choice compared to olanzapine. The analysis is limited by the lack of comparative data in this population. The effectiveness of quetiapine extended-release was assumed to be the same as the instant-release formulation, however, due to a less complicated and shorter titration regimen allowing therapeutic dose to be reached much sooner, quetiapine extended-release may have added benefit via a positive impact on patient compliance and psychosis management.