OBJECTIVES: This study evaluates the long-term economic consequences of saxagliptin versus sulfonylurea (SU, glipizide) as second-line therapy when used in combination with metformin (MET) after failure of monotherapy treatment with MET, in patients with type 2 diabetes mellitus (T2DM) in Germany. METHODS: A published discrete event simulation model with a fixed time increment was used and set to a 40-year (life-) time horizon. Disease progression was modeled using evidence from the United Kingdom Prospective Diabetes Study (UKPDS 68). The treatment sequence matched that of published guidelines, and efficacy and safety data were derived from published sources. The model assumes that quality-adjusted life-years (QALYs) are affected by complications and hypoglycaemic events over a lifetime. As such costs and utility decrements for macro- and micro-vascular complications, and adverse events such as severe hypoglycaemia are included. Costs were specific to the German setting where SUs are generic. Costs and effects were discounted annually at 3%. The perspective of the national sick funds was taken, and recommendations from the Institute for Quality and Efficiency in Health Care (IQWiG) were considered. RESULTS: Treatment with saxagliptin + MET was associated with lower incidence of both symptomatic and severe hypoglycaemic events, resulting in an incremental benefit of 0.12 QALYs and an incremental cost-effectiveness ratio (ICER) of €13,931 per QALY gained. Modest reductions in all macro-vascular and micro-vascular complications were seen in those receiving saxagliptin + MET compared with SU + MET. Sensitivity analysis showed that treatment-related weight changes, as a risk factor for complications, represent the most influential driver of cost-effectiveness. CONCLUSIONS: Saxagliptin is associated with improved outcomes, a lower incidence of hypoglycaemic events, and weight neutrality, when compared with generic SU, at a cost that would likely be considered acceptable in the German setting.