Predictive market contracts linked to clinical trials and drug approval trigger dissatisfaction among U.S. lawmakers
CNBC
21m ago
Ai Focus
According to a letter obtained exclusively by CNBC, two U.S. Democratic senators have expressed concerns regarding predictive market event contracts related to clinical drug trials and the approval process by the U.S. Food and Drug Administration (FDA), and have requested that the U.S. Department of Health and Human Services (HHS) explain what measures have been taken to mitigate these risks. Both Kalshi and Polymarket offer such contracts, while Kalshi claims that protective measures have been put in place. Polymarket and the U.S. Department of Health and Human Services have not immediately responded to requests for comment.
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According to a letter obtained exclusively by CNBC, contracts related to predictive market events concerning clinical drug trials and regulatory approvals from the U.S. Food and Drug Administration (FDA) have drawn the attention of two Democratic senators.

Senators Angela Alsobrooks (Democratic, Maryland) and Ron Wyden (Democratic, Oregon) expressed concerns regarding the relevant events in a letter to Robert F. Kennedy, Jr., Secretary of Health and Human Services (HHS), on Wednesday. The two senators inquired about the measures that have been taken to mitigate the potential risks these markets may pose.

Two senators wrote in the letter: "Allowing individuals to bet on the success of these trials and drugs will undermine the scientific process, create distorted incentives for researchers, harm trial participants, and may lead to dangerous medical consequences for an unknown number of Americans."

Also Brooks and Wyden reiterated some concerns raised by medical professionals that these markets may affect patients' decisions when considering whether to participate in trials; they also expressed concern about potential insider trading risks, as researchers and regulators may possess undisclosed information.

Communication Material Requirements

Two senators have requested that HHS provide all internal communication records related to employee participation and matters under the jurisdiction of that department, which are concerning predictive markets. They also demand all communications between that department and the predictive market platform itself, as well as with the Commodity Futures Trading Commission (CFTC) responsible for regulating event contracts, and any internal analyses conducted regarding the potential impacts on these markets.

Also Brooks and Wyden stated in the letter: “HHS, FDA and the National Institutes of Health ( NIH) must implement necessary safeguards to prevent individuals from profiting from the success and approval of drugs that the American public relies on, in order to maintain the integrity of the drug development process and to preserve public trust in public health.”

Both major forecasting market platforms Kalshi and Polymarket offer such contracts. However, for Polymarket, these contracts can only be found on their international exchanges, which are not regulated by the United States.

Kalshi stated when launching the related markets in July that the company had implemented protective measures, such as only allowing access to markets related to later trials, in order to limit trading risks. Kalshi also promised that contracts would only be launched after the recruitment of participants in the trials was completed, and that employee authentication technology would be used for all traders participating in transactions in these markets.

"Drug development is one of the most important industries on Earth, yet it is also one of the most information-constrained," said Tarik Mansour, CEO of Kalshi, in July. "The data that determines which drugs will move forward and which will not is largely kept hidden from those who need this information the most. Making this information accessible is precisely the purpose of Kalshi's existence, and we are committed to doing this in the right way."

Kalshi pointed out that investors are also buying stocks of companies in fields such as biotechnology and pharmaceuticals that are awaiting regulatory approval.

Spokesperson Jack Sach ( Jack Such ) said to CNBC: 'The hypothetical concerns raised by the senators also apply to the stock market, but it seems they didn't mention this in their letter. The only difference is that the scale of the stock market – as well as the incentives for improper behavior – are significantly higher than those of the Kalshi market.'

Polymarket and the U.S. Department of Health and Human Services did not immediately respond to CNBC's request for comment.

Revelation: CNBC has a business relationship with Kalshi, which includes client acquisition for cooperation as well as a small amount of equity investment.

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