OBJECTIVES: The purpose of this study was to evaluate the relative cost effectiveness (cost utility) of insulin glargine versus NPH insulin in the UK for the treatment of people with type 2 diabetes mellitus (T2DM) using pooled data from the Phase III clinical trials programme. METHODS: This was a health economic evaluation using a stochastic simulation model. Transition probabilities for progression to diabetes-related complications for the model were derived mainly from the UKPDS (United Kingdom Prospective Diabetes Study) risk equations. Costs were derived from published estimates and local data. The maximum time horizon was 40 years to ensure effective modelling of diabetes patients. Utility values were extracted from the Health Outcomes Data Repository (HODaR) and published sources. Costs were calculated from UK £2005 prices. Costs and benefits were discounted annually at 3.5%. In this case, the model reported the experiences of 1,000 subjects averaged over ten repeat simulations. Relative effectiveness for glycaemic control (HbA1c) and hypoglycaemia was determined from a meta-analysis of the pivotal clinical trials. RESULTS: Pooled analysis of pre-registration studies showed no difference in HbA1c between glargine-treated patients and NPH but a 40% relative risk reduction in severe hypoglycaemic episodes, a 35% relative risk reduction in nocturnal hypoglycaemic episodes and a 10% relative risk reduction of symptomatic hypoglycaemia. Over the 40 years, treatment with NPH resulted in 37,059 additional severe hypoglycaemic events, 200,416 additional nocturnal hypoglycaemic events and 2,605,408 additional symptomatic hypoglycaemic events compared to insulin glargine. The discounted incremental cost effectiveness ratio (ICER) was £15,197 per quality adjusted life year (QALY) gained. Sensitivity analysis showed these findings were robust. CONCLUSIONS: Insulin glargine is cost effective when used as basal insulin for the treatment of people with type 2 diabetes. The ICER is well within accepted thresholds for cost effective treatments in the UK.