Rebuttal to Jeffrey Sachs on Sovaldi (why high drug prices can be justified)

From David Henderson of Econlog.

"One of the big breakthroughs in economics was the "Marginal Revolution" of the 1870s, when economists figured out that the value of something is not the same as the cost. The value of Sovaldi to many people is far above the production cost. Allowing companies to charge high prices that reflect that value will give them an incentive to keep on researching, discovering, and producing high-value--and sometimes life-saving--drugs.

This is the closing paragraph of my article "In Defense of an 'Expensive' Drug," Defining Ideas, April 30, 2015. In it, I take on Jeffrey Sachs's piece in which he criticized Gilead for charging such a high price of its drug Sovaldi. Another excerpt:

But, first, let's consider the relevant question about Sovaldi: Is its value higher than its price? For many people, it is. Indeed, when we understand just how valuable the drug is--not to Gilead, but to patients--it's clear that Sovaldi is an incredible bargain. Consider how doctors treated Hepatitis-C shortly before Sovaldi came along. According to WebMD, "the typical treatment for hepatitis C was a combination of interferon and ribavirin with two antiviral drugs," telaprevir or boceprevir, both of which were introduced in 2011. This combination led to cure rates between 30 and 80 percent. But the side effects were awful: flu-like symptoms, fatigue, anxiety and depression, and anemia. Sovaldi has only mild side effects and a 90-percent cure rate. Also, the previous treatments took 28 to 48 weeks to cure Hepatitis-C, whereas Sovaldi takes only 12 weeks to work. 

Moreover, according to Jonathan M. Fenkel, a doctor who directs Thomas Jefferson University's Hepatitis C Center, the price of a Sovaldi treatment is "on a par with the costs of telaprevir or boceprevir." So the price of Sovaldi is about the same as the combined prices of telaprevir or boceprevir; the cure rate is higher; the side effects are much milder; and the therapy takes less time. Sovaldi sounds like a bargain.

I also consider the case for intellectual property and argue that, if we take as given the FDA's restrictions on new drugs, the case for intellectual property for drugs is strong."