medium · CFA Level I ethics
An analyst at Amberfen Pharma uses a proprietary 15-year DCF model to value a drug pipeline. The model relies heavily on a third-party laboratory's clinical trial success estimates. The analyst reviews the laboratory’s methodology, discovers it is based on a limited 3-year sample size, but uses the data anyway without mentioning this limitation in the research report. The report states, "The drug is valued at $45.00 based on its high probability of FDA approval."
Regarding the use of the third-party research, has the analyst violated Standard V(A) Diligence and Reasonable Basis?
- No, because third-party research is exempt from the diligence requirement under the mosaic theory.
- Yes, because the analyst used the data despite recognizing the inadequacy of the sample size.
- No, as long as the analyst keeps the laboratory's original report in their files for seven years.
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