OBJECTIVES: To assess the incremental cost-effectiveness of imatinib relative to interferon alfa plus low-dose cytarabine (IFN+LDAC) as 1st-line therapy for patients newly diagnosed with chronic phase CML. METHODS: An economic simulation model was developed using Microsoft Excel to estimate lifetime costs, survival and quality-adjusted survival. Data collected in the International Randomized Interferon vs. STI571 Study (IRIS) and supplemental data from the literature were used to populate the model. Patients initially treated with imatinib could switch to IFN+LDAC and vice-versa for patients started on IFN+LDAC, with both arms eventually switching to hydroxyurea as 3rd-line treatment. Long-term survival was modeled on complete cytogenetic response (CCyR) after 2 years. Published survival curves for patients with or without complete CCyR after treatment with interferon alfa were used to estimate long-term survival. RESULTS: The results of our cost-effectiveness model showed that patients treated 1st-line with imatinib were projected to live for approximately 15.13 years while those treated 1st-line with IFN+LDAC were projected to live for approximately 10.75 years. Undiscounted lifetime costs were estimated at approximately $456,000 for patients receiving imatinib and $286,194 for patients receiving IFN+LDAC. After applying a 5% discount rate, the incremental gain in survival was estimated at 2.09 life-year and 1.91 quality adjusted life-year in favour of imatinib. Due to the increased survival, the incremental discounted lifetime costs were approximately $96,118 higher among patients treated with imatinib, resulting in cost-effectiveness ratios of Can$45,537/LY saved and Can$49,953/QALY. Assumptions that affected duration or costs of the treatments had the largest impact on the ICERs. CONCLUSIONS: Our analysis showed that imatinib offers both longevity and quality of life benefits. Furthermore, compared to IFN+LDAC, imatinib proved to be a cost-effective 1st-line therapy for patients with newly diagnosed chronic phase CML.