BACKGROUND: Recent trials report the efficacy of continuous tenofovir-based pre-exposure prophylaxis (PrEP) for prevention of HIV infection. The cost effectiveness of ‘on demand’ PrEP for non-injection drug-using men who have sex with men at high risk of HIV acquisition has not been evaluated.OBJECTIVE: To conduct an economic evaluation of the societal costs of HIV in Canada and evaluate the potential benefits of this PrEP strategy.METHODS: Direct HIV costs comprised outpatient, inpatient and emergency department costs, psychosocial costs and antiretroviral costs. Resource consumption estimates were derived from the Centre Hospitalier de l’Université de Montréal HIV cohort. Estimates of indirect costs included employment rate and work absenteeism. Costs for ‘on demand’ PrEP were modelled after an ongoing clinical trial. Cost-effectiveness analysis compared costs of ‘on demand’ PrEP to prevent one infection with lifetime costs of one HIV infection. Benefits were presented in terms of life-years and quality-adjusted life-years.RESULTS: The average annual direct cost of one HIV infection was $16,109 in the least expensive antiretroviral regimen scenario and $24,056 in the most expensive scenario. The total indirect cost was $11,550 per year. Total costs for the first year of HIV infection ranged from $27,410 to $35,358. Undiscounted lifetime costs ranged from $1,439,984 ($662,295 discounted at 3% and $448,901 at 5%) to $1,482,502 ($690,075 at 3% and $485,806 at 5%). The annual cost of PrEP was $12,001 per participant, and $621,390 per infection prevented. The PrEP strategy was cost-saving in all scenarios for undiscounted and 3% discounting rates. At 5% discounting rates, the strategy is largely cost-effective: according to least and most expensive scenarios, incremental cost-effectiveness ratios ranged from $60,311 to $47,407 per quality-adjusted life-year.CONCLUSION: This ‘on demand’ PrEP strategy ranges from cost-saving to largely cost-effective. The authors believe it represents an important public health strategy for the prevention of HIV transmission.