Kalshi’s prediction markets on clinical trials and Food and Drug Administration (FDA) decisions are facing mounting criticism from lawmakers and medical researchers, even as several of the contracts have attracted little trading activity.
Democratic Sens. Angela Alsobrooks of Maryland and Ron Wyden of Oregon sent a letter Wednesday to Health and Human Services secretary Robert F. Kennedy Jr., questioning safeguards against risks to patients and insider trading.
“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, according to CNBC, which first obtained the letter.
Their concerns follow an Oct. 29 commentary in the medical journal JAMA, co-authored by former FDA commissioner Robert Califf, and a Nov. 2 Public Citizen article calling for a ban or tougher restrictions on such contracts.
Meanwhile, a review found several Kalshi FDA decision contracts with cumulative trading volumes of a few hundred dollars or less. That raises questions about the usefulness of the forecasts the exchange says these markets are intended to provide.
Researchers warn biotech markets could undermine clinical trials
The JAMA authors argue Kalshi‘s rule against listing trial-outcome contracts before enrollment closes does not prevent trading while a study is still underway.
They point to POLARIS-AD, a Phase 3 Alzheimer’s disease trial, as an example.
“For trials like POLARIS-AD, which depend on months of follow-up data collection after the last participant enrolls, the exact period during which Kalshi prices a public, financially incentivized probability is the period during which that outcome is still being generated,” the researchers wrote.
Publicly displayed probabilities could also influence whether patients stay in a trial, they warned.
“Low public odds of success could discourage continued participation in trials that already carries high participant burden, increasing dropout and reducing statistical power,” the authors said. “High public odds could have the opposite effect: participants who do not perceive the benefit predicted by optimistic markets may conclude they are in the placebo group and discontinue follow-up.”
The researchers also warned that traders might have incentives to interfere directly with a study.
“A trader who buys a Kalshi contract that pays out if a trial fails has a direct financial incentive not only to predict a bad outcome, but to help bring one about,” the researchers warned.
Kalshi’s employment verification measures aim to prevent people with inside knowledge from trading on confidential information. But the JAMA authors warned that employment checks may miss others with similar access. These could include researchers’ family members, outside contractors and trial participants who might profit from information unavailable to the public.
The researchers also questioned whether patients should be informed about markets tied to their trials and whether sponsors should monitor their effects.
The commentary identifies potential risks, not documented cases of interference. Kalshi included POLARIS-AD among its launch contracts in July.
Public Citizen questions value of biotech markets
Public Citizen’s Robert Steinbrook went further, questioning whether clinical research should provide opportunities for financial speculation in the first place.
Steinbrook directs Public Citizen’s Health Research Group. He questioned Kalshi’s goal of using prediction markets to inform drug development.
“Clinical research is based on public trust and should advance medical knowledge and public health,” Steinbrook wrote. “Clinical research is not about providing information to investors and financial markets.”
Steinbrook also questioned whether these markets could produce meaningful forecasts without creating opportunities for insider trading.
“The risks of drug-development prediction markets include leaks of nonpublic information, insider trading and spillover effects on trial enrollment,” wrote Steinbrook. “The only people who should really know what is going on are insiders with nonpublic information, such as the drug sponsors, investigators at trial sites, participants and FDA officials. These insiders, who shouldn’t be betting at all, are in the best position to profit.”
Steinbrook argued that existing safeguards were insufficient and called on the Commodity Futures Trading Commission (CFTC) to intervene.
“Although bets on clinical trial results and drug approvals are legal, they shouldn’t be,” Steinbrook wrote. “The CFTC should prohibit these bets or, at a minimum, develop a strong regulatory framework that forbids betting by anyone with nonpublic information.”
Kalshi biotech markets attract limited trading
Kalshi launched its biotech markets with data provider AppliedXL in July. Despite growing scrutiny, several contracts have attracted little trading.
AppliedXL monitors public clinical trials and FDA records to help determine whether contracts meet their settlement conditions. It provides supporting evidence to Kalshi, which retains final authority over contract outcomes.
A review of Kalshi’s biotech markets Wednesday found just $303 in cumulative trading volume on AstraZeneca’s tozorakimab contract. Mineralys Therapeutics’ lorundrostat contract had $20 in volume, while United Therapeutics’ ralinepag had none.
Those contracts were newly added. Other biotech markets have attracted more trading, though volumes remain modest compared with those in other categories on Kalshi. These include $11,639 on Summit Therapeutics’ ivonescimab and $4,075 on Gilead Sciences’ anito-cel. A previously resolved cytisinicline contract recorded $23,819.
The figures represent selected contracts, not the entire category, but raise questions about whether lightly traded markets can deliver the useful forecasts Kalshi envisioned.
When announcing the markets, Kalshi argued that its contracts could provide publicly accessible probabilities for individual drug outcomes, unlike pharmaceutical stocks, which reflect the performance of an entire company.
Kalshi also defended the markets against the senators’ criticism, telling CNBC that traditional financial markets carry similar risks.
“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.”
In its July announcement, Kalshi described the initiative as a limited pilot, saying it and AppliedXL would assess market performance and trader engagement before any broader rollout.