In July, prediction market platform Kalshi launched its biotech prediction markets pilot program, which allows users to place bets on the outcomes of clinical trials and U.S. Food and Drug Administration (FDA) regulatory decisions. Competitor website Polymarket similarly allows users to bet on the regulatory future of investigational drugs. These growing markets raise new questions for institutions that conduct research.
What are Prediction Markets?
Kalshi and other similar prediction markets are currently regulated at a federal level by the U.S. Commodity Futures Trading Commission (CFTC), similarly to the stock market. This means they are not subject to state-specific gambling regulations like traditional sportsbooks or casinos. Kalshi has been at the center of a flurry of legal battles, with the Supreme Court expected to potentially take on the question of whether these markets should be regulated by the federal government as U.S. derivative markets or by the states as gambling.
Do Prediction Markets Let Anyone Trade, Even Researchers?
Kalshi purports to have built several safeguards into its pilot program, including:
- limiting betting to late-stage trials, which register their primary endpoints publicly;
- listing trading opportunities only after enrollment closes in an attempt to not influence recruitment; and
- employment verification of anyone who wants to participate in clinical trial related wagers.
Kalshi expressly prohibits anyone who holds material nonpublic information from trading. Other prediction markets may or may not impose similar safeguards. The CFTC has brought enforcement actions against individuals who engaged in insider trading on prediction markets, including both Kalshi and Polymarket.
What Should Research Institutions Do?
While some prediction markets have employed their own safeguards against individuals with material nonpublic information, institutions should not rely on them. An individual with nonpublic knowledge, such as a principal investigator or research team member, could create significant legal and reputational consequences for the individual and institution, as well as the integrity of the related clinical trial(s), by engaging with prediction markets. In addition to government-imposed penalties, such actions may expose the institution to litigation for breaching its confidentiality obligations to pharmaceutical sponsors and other industry stakeholders. Consequently, institutions should consider enforcing their own restrictions on participating in prediction markets.
Institutions that conduct or otherwise engage in research should re-examine their policies as they relate not only to their clinical research teams, but also to their IRB members, budget department, research coordinators, subcontractors, and anyone else who may have access to sensitive information. For example, conflict of interest policies that were drafted prior to the booming popularity of prediction markets likely address traditional insider trading but may not adequately address these continuously changing markets. Specifically, hospitals should keep an eye on pending litigation relating to prediction markets to consider whether policies need to be updated as the regulatory landscape continues to evolve.
What Do I Do Next?
Should you require assistance in taking these steps or have any questions regarding these potential changes, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, the Clinical Trial/Research practice group, or contact us at [email protected].