Thousands of lung cancer sufferers are set to be denied the potentially life-extending drug Tarceva, under draft guidance from the government's health watchdog.

Tarceva, which costs £6,796 for the average 125-day course of treatment, is considered one of the few significant advances against non-small cell lung cancer to have occurred for a decade, and is designed for patients who have failed at one chemotherapy regime.

The drug is seen as particularly crucial because it could be effective for 80% of lung cancer sufferers, accounting for 30,000 new cases a year.

While it does not offer a cure, it increases the chances of being alive after a year by 42%, according to the drug manufacturers Roche.

But in a preliminary ruling published yesterday, the National Institute for Health and Clinical Excellence (Nice) ruled out Tarceva, also known as erlotinib, as well as a second drug, Alimta (pemetrexed), on the grounds of cost.

Cancer charities described the guidance - which is not final and is open to consultation - as "deeply disappointing".

The Scottish Medicines Consortium, the Scottish equivalent of Nice, approved the drug for patients in Scotland two months ago, meaning that lung cancer sufferers across the UK are set to get different treatment.

Professor Alex Markham, the chief executive of the leading cancer charity Cancer Research UK, said it would be "incomprehensible for such a drug to be available to patients in Edinburgh but not in Newcastle".

He added: "Nice reports a lack of direct evidence about the benefits of Tarceva compared with the drug docetaxel [the standard chemotherapy treatment], but lack of evidence does not mean evidence of a lack of benefit.

"Non-small cell lung cancer is very difficult to treat, and Tarceva is one of the few significant advances against the condition to emerge over the last decade. While not a cure, the drug can significantly extend the lives of patients with this form of lung cancer."

Cancer Research UK will now be writing to Nice to express its opposition to this decision and urge the appraisal committee to reconsider before it comes back with a final ruling next year.

In a statement, Nice's chief executive, Andrew Dillon said: "Our initial assessment of the evidence shows that neither of these drugs represents a good use of scarce NHS resources."

Tarceva works by targeting the growth receptor HER-1 and so shrinking tumours. About 3,000 lung cancer sufferers a year - those who fail with chemotherapy -would be eligible for Tarceva.

Its manufacturers Roche said it welcomed the opportunity from Nice to demonstrate the cost and clinical effectiveness of the drug.