OBJECTIVES: To assess the cost-effectiveness of pembrolizumab compared with ipilimumab in patients with unresectable or metastatic melanoma (advanced melanoma) previously untreated with ipilimumab, from the perspective of a Canadian publicly funded health care system.  METHODS: A three-state partitioned survival model was developed to estimate the cost-effectiveness of pembrolizumab compared with ipilimumab over a 20-year time horizon. Costs and health outcomes were discounted at an annual rate of 5%.  Data from an interim analysis (cut-off date: March 3, 2015) of a randomized phase 3 study, KEYNOTE-006, comparing pembrolizumab and ipilimumab, were used to populate the model.  The model used Kaplan Meier (KM) estimates of PFS and OS from the trial with extrapolation based on parametric functions and data from the literature.  Costs related to drug acquisition, treatment administration, adverse event management, and clinical management of advanced melanoma were included in the model.  Drug acquisition costs were based on Canadian list prices.   Quality of life information was derived based on EQ-5D data from KEYNOTE-006.   A series of one-way and probabilistic sensitivity analyses was performed to test the robustness of the result.  RESULTS: Pembrolizumab is projected to increase the life expectancy of patients by 1.36 years, which corresponds to a gain of 1.05 QALYs over ipilimumab over a 20-year time horizon. In the base-case analysis, the (discounted) incremental cost per QALY gained with pembrolizumab vs. ipilimumab is $52,829/QALY.  Results of one-way and probabilistic sensitivity analyses show that the results are cost-effective in most scenarios. CONCLUSIONS: Pembrolizumab improves the QALYs and is a cost-effective therapeutic option compared to ipilimumab in advanced melanoma patients.