Prediction market event contracts on both clinical drug trials and Food and Drug Administration regulatory approvals are drawing attention from two Democratic senators, according to a letter obtained first by CNBC.
Sen. Angela Alsobrooks, D-Md., and Sen. Ron Wyden, D-Ore., expressed concern over the related event contracts in a Wednesday letter to Department of Health and Human Services Secretary Robert F. Kennedy Jr. The senators asked what measures HHS has taken to mitigate any risks that may arise from the markets.
“Allowing individuals to bet on the success of these trials and drugs undermines the scientific process, creates perverse incentives for researchers, harms trial participants, and could lead to dangerous medical outcomes for untold numbers of Americans,” the senators wrote.
Alsobrooks and Wyden repeated concerns raised by some healthcare professionals that the markets could alter patient thinking when considering whether to participate in a trial and expressed concern over potential insider trading risks from researchers and regulators who may have access to nonpublic information.
Communication request
The senators requested HHS provide all internal communication regarding staff participation in prediction markets tied to matters governed by the department. They also requested all communication between the department and the prediction market platforms themselves, the Commodity Futures Trading Commission — which regulates event contracts — and any internal analyses that have been done regarding the potential impact of the markets.
“HHS, FDA, and [the National Institutes of Health] must uphold the integrity of the drug development process and maintain public trust in the public health by putting essential guardrails in place to prevent individuals profiting on the success and approval of drugs that the American people depend on,” Alsobrooks and Wyden said in the letter.
Both leading prediction market platforms, Kalshi and Polymarket, offer the contracts, although in Polymarket’s case the markets can only be found on its international exchange, which isn’t regulated in the U.S.
When Kalshi launched its related markets in July, the company said it put in place the guardrails, such as only allowing markets related to late-stage trials, in order to limit the risk of trading. Kalshi also vowed to list contracts only after a trial had completed enrollment and to use employee verification technology for all traders participating in the markets.
“Drug development is one of the most important and most information-constrained industries on earth,” Kalshi CEO Tarek Mansour said in July. “The data that determines which drugs advance and which don’t is largely locked away from the people who need it most. Surfacing information is what Kalshi is for, and we are committed to doing it right.”
Kalshi noted that investors also buy shares in companies in fields including biotechnology and pharmaceuticals that are awaiting regulatory approvals.
“The hypothetical concerns of the Senators apply equally to the equities market, which appears to be left out of their letter.,” Kalshi spokesperson Jack Such told CNBC. “The only difference is that the size — and incentive for bad activity — is significantly higher in the equities market than it is on Kalshi.”
Polymarket and the Department of Health and Human Services didn’t immediately respond to CNBC’s requests for comment.
Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.