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In defining and measuring the elements of the value chain, an initiative between the World Health Organization (WHO) and Health Action International (HAI) has established a useful methodology to classify the level of medicine price build-up at each step.
According to the WHO/HAI there are six key components which contribute to the price build-up of medicines (see Exhibit 1). These are as follows:
1. Manufacturer selling price: the net acquisition cost of the medicine from the manufacturer, reflecting all discounts, rebates or other reductions in price.
2. Cost, insurance, freight charges (CIF), import tariffs and charges: the cost of importing a finished pharmaceutical product (FPP) or active pharmaceutical ingredient (API) into a country.
3. Importer margin: applied by the importer who is tasked with procuring and receiving delivery of imported goods. Elements of the medicine value chain 2
4. Distributor margin: applied by wholesalers and sub-wholesalers to perform the logistical role of storing and subsequently transporting medicine to point of sale.
5. Retailer margin: applied by retailers in the final step of the distribution chain, the point at which medicines are dispensed to patients.
6. Taxes: the final component of the price build-up which can include both national and regional taxes.