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On July 16, Kalshi announced the launch of a new prediction market platform focused on clinical trial outcomes and FDA regulatory decisions through a partnership with AppliedXL,1 an AI-driven information and analytics company that analyzes public data to produce forecasting insights. The pilot program is currently limited to late-stage clinical trials. Contracts are listed only after patient enrollment has closed, and traders are subject to employment verification requirements to ensure they are not employed by any of the companies involved in the clinical trials. Kalshi also states that, as with its other markets, individuals in possession of material nonpublic information are prohibited from trading.2
Each contract relies on a predefined public document to determine the outcome of the event subject to the trade, such as a registered primary endpoint on ClinicalTrials.gov, an FDA approval letter, or an advisory committee vote record. Before trading begins, AppliedXL defines the criteria for interpreting the document. One example contract Kalshi lists asks whether the FDA will approve Gilead's multiple myeloma treatment by the end of 2026.3
The launch is likely to attract significant attention from both regulators and other prediction market operators. Markets tied directly to clinical trial outcomes and FDA regulatory decisions may create new compliance and insider trading concerns for both prediction markets and pharmaceutical companies.
Insider Trading Enforcement in the Life Sciences Industry
The life sciences industry has historically been a focus of insider trading enforcement. The US Attorneys' Office for the Southern District of New York filed one of the first significant enforcement actions in 2012 in the US District Court for the Southern District of New York against former SAC Capital portfolio manager Mathew Martoma, who was sentenced to nine years in prison in 2014 for trading on confidential information concerning an Alzheimer drug clinical trial.4 Prosecutors alleged that the trading generated approximately $275 million in profits and avoided significant losses for SAC Capital.5
More recent enforcement actions demonstrate that the DOJ, SEC, and most recently state regulators continue to scrutinize trading activity connected to pharmaceutical companies and drug development. For example, on December 22, 2025, the SEC filed an enforcement action in the US District Court for the District of New Jersey alleging market manipulation and insider trading involving the securities of Olema Pharmaceuticals and Opiant Pharmaceuticals.6 The complaint alleged, among other things, that an insider and several tippees traded on material nonpublic information regarding potential corporate acquisitions.7
Less than a month later, on January 15, 2026, New York Attorney General Letitia James sued the former CEO of Emergent BioSolutions, a biopharmaceutical company, in New York State Supreme Court for alleged insider trading and announced a related settlement with the company concerning its approval of the CEO's 10b5-1 trading plan.8 In 2020, Emergent contracted with a biopharmaceutical company to manufacture Covid-19 vaccines but later experienced significant manufacturing and contamination issues, rendering many of the vaccines unusable. The Attorney General alleged that the former CEO was aware of these issues and sold his company shares before the problem became public.9 That same week, the SEC charged a clinical consultant and his company, Precision Clinical Consulting LLC, with insider trading after the consultant allegedly purchased shares of a biopharmaceutical company while in possession of favorable clinical trial data that remained confidential.10 Insider trading cases are rarely brought by state prosecutors, making the New York Attorney General's action an uncommon example of state-level enforcement in an area typically dominated by federal regulators.
Managing the Compliance Risks of Clinical-Trial Prediction Markets
The expansion of prediction markets into the clinical-trial space is perhaps a logical extension of prediction markets' offerings in areas like politics and current events; the risks associated with those earlier prediction market contracts will be equally relevant to these new offerings. Market operators will need to ensure that their compliance frameworks are tailored to address the unique risks associated with material nonpublic information in the life sciences sector. Now, pharmaceutical and biotechnology companies must also be aware of the unique risks that prediction market contracts could pose to their clinical trials, such as employees using insider information to trade on the success or failure of a clinical trial, or employees having new and different financial incentives to potentially influence the outcome of a clinical trial. Companies will also need to integrate limitations on prediction market participation into their insider trading policies. These companies should be prepared for the possibility that employees (or others) could engage in unusual trading activity preceding major clinical trial results or FDA decisions, which could draw the attention of regulators and enforcement authorities and call into question the integrity of their trials.
Steptoe can help clients navigate these risks at every stage, from proactive compliance and risk mitigation to regulatory inquiries and enforcement proceedings. Steptoe advises companies on insider trading and compliance risks, including updating policies, training employees, and strengthening controls to address emerging issues such as prediction markets. If an inquiry or enforcement action arises, our white collar, securities enforcement, and life sciences teams are experienced in conducting investigations and defending clients before the SEC, DOJ, state attorneys general, and other regulators.
Footnotes
2. Id.
3. Id.
5. Id.
6. https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26458
7. Id.
9. Id.
10 https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26460
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