Objective: As new agents become available for the treatment of diseases, there exists a need to evaluate the cost-effectiveness of the agents. This study calculates the cost-per life-year saved and the budget impact of lapatinib, a new dual tyrosine inhibitor as part of the formulary evaluation process at a major tertiary cancer center. Methods: A decision analytical model was developed to estimate the incremental cost-effectiveness of lapatinib for advanced breast cancer. The model estimates the incremental cost-effectiveness of two strategies: combination therapy of lapatinib with capecitabine compared to capecitabine alone. The outcome of interest was time to disease progression, based on randomized clinical trials (RCTs). Direct medical costs from the institutional perspective were utilized and were calculated for a one year time period. One-way and two-way sensitivity analysis on the rate of disease progression for monotherapy and combination therapy was conducted. In addition, a budget impact model was also calculated for the institution. Results: Based on outcome estimates from RCTs and the application of the institutional costs, the cost-per-life-year saved for lapatinib for treatment of advanced breast cancer was $108,300. One-way sensitivity analysis of the combination response (0-50%) indicated that lapatinib's cost-effectiveness ratios ranged from $100,000 to $119,000 per life-year saved. Two-way sensitivity analysis indicated that the majority of the time monotherapy was more cost-effective. The lapatinib combination was only considered cost-effective, if the response rate of the monotherapy never exceeded 14.6%. The budget impact model, which incorporated both on-label and off-label usage of lapatinib, estimated that the institution will utilize about 10 million dollars worth of drugs annually, based on acquisition costs. Conclusion: Lapatinib appears to have similar cost-effectiveness in comparison with other targeted oncology agents. Post evaluation economic analysis will be conducted to determine how closely the economic model predicted the utilization of lipatinib at the institution.