OBJECTIVE: Pharmacoeconomic assessment of erlotinib (Tarceva) vs best supportive care (BSC) for the treatment of relapsed NSCLC conducted as part of the Canadian reimbursement submission. METHODS: Analyses were conducted from the perspective of the Canadian public healthcare system, and included cost-effectiveness (CE) of erlotinib vs BSC. The decision analytic model included three health states (progression-free, progression and death) with a time horizon of 24–36 months. The model is a straight forward calculation of the area under the curve for time spent in the progression-free and progression health states. The model structure follows the disease pathway for NSCLC patients and the outcomes captured in the clinical trials. Cost components included drug acquisition, physician visits, hospitalizations, laboratory and diagnostic tests/procedures. Deterministic sensitivity analyses were performed. RESULTS: Incremental CE ratio at 3 years discounted at 5% is Can$71,018/Life Year Gained vs BSC. During the reimbursement submission process the Common Drug Review (CDR), and subsequently the Ontario provincial Ministry of Health (MoH) questioned whether erlotinib should be restricted to certain subgroups (i.e. adenocarcinoma histology or HER1/EGFR-positive groups). However, the pivotal BR.21 erlotinib trial showed an overall survival benefit in an unselected patient population (56% HER1/EGFR status unknown). As all BR.21 molecular subgroup analyses were exploratory and underpowered, tests of interaction did not identify a molecular subgroup with a better survival when treated with erlotinib that was statistically significant. In particular HER1/EGFR protein expression was not found to impact on survival in the BR.21 trial. Based on these data, the CDR and MoH in Ontario subsequently confirmed subgroup-specific CE analyses were not required. CONCLUSIONS: Erlotinib received positive recommendations from the CDR. Ontario, British Columbia, Quebec, Nova Scotia and Newfoundland are provinces currently reimbursing erlotinib from their provincial drug plans.