If the draft ruling is upheld after further consultation, Zytiga, which is marketed by Johnson & Johnson, will not be reimbursed on the state-run National Health Service (NHS).

The drug was hailed as a significant advance by cancer doctors after a clinical trial showed it extended the lives of patients with advanced prostate cancer by an average of 3.9 months. Unlike many cancer medicines, it can be taken at home.

It was quickly approved by U.S. and European regulators last year, but Britain's National Institute for Health and Clinical Excellence (NICE) said it did not provide enough benefit to justify the high cost, even with a discount offered by J&J.

Zytiga, also known as abiraterone, is taken once a day as a single dose of four tablets and costs 2,930 pounds ($4,600) for a 30-day supply.

J&J has offered a discount, the size of which is confidential, and it is possible that further haggling might produce an acceptable pricing deal -- but leading cancer charities are alarmed by the impasse.

The Institute of Cancer Research (ICR), whose scientists discovered the medicine, said it hoped NICE would now work with J&J to find a solution.

Cancer Research UK, which supported research into Zytiga with the Medical Research Council and BTG before rights to the drug were finally acquired by J&J, also questioned the grounds of the NICE verdict, which it said made "no sense."

"Generous public donations to Cancer Research UK and other organizations paid for the initial development of the drug and we feel extremely let down," said Harpal Kumar, the charity's chief executive.

It is the first time since 2008 that Cancer Research UK has publicly criticized a ruling from NICE, whose decisions on whether or not drugs should be used on the NHS are often controversial.

Worldwide sales of Zytiga are expected to reach $1.6 billion a year by 2015, according to consensus forecasts compiled by Thomson Reuters Pharma. British charities will receive royalties on those sales, which will be reinvested in further research.

The drug works by decreasing production of testosterone that would stimulate cancer cells to continue growing. It is designed for use in combination with the steroid prednisone in patients with late-stage castration-resistant prostate cancer who have received prior chemotherapy treatment.

Johann de Bono from the ICR told a conference in Milan in 2010 the survival gain it offered compared favorably with that seen with Roche's Herceptin in breast cancer.

The NICE decision means British men could be left without the chance to benefit from "one of the biggest breakthroughs in the treatment of the disease for many years," according to Owen Sharp, chief executive of the Prostate Cancer Charity.

(Reporting by Ben Hirschler; Editing by Helen Massy-Beresford)

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