Prediction markets like Kalshi and Polymarket now take bets on drug trials and FDA rulings. That gives insiders a new place to cash in on secret trial data. Our latest post looks at what this means for biotech investors in the US and Europe, and the evidence it might add to future investor claims.
Drug trial data has long been some of the most prized secret information in the markets. A good result can send a small biotech stock soaring. A bad one can cut its value in half overnight. Now, prediction markets let people bet on these same results. That gives insiders a new place to cash in on what they know. Institutional investors on both sides of the Atlantic should watch this closely.
An Old Problem
Trading on secret trial data is not new. The SEC has brought many cases over the years. For example, in 2021, the SEC charged a lead trial investigator who bought Five Prime stock before good trial results came out. The stock rose over 300%. He sold the next day for a gain of about USD 134,000.1 A Puma Biotechnology director made over USD 1.1 million trading ahead of news from two trials of a breast cancer drug, per the SEC.2 A Neuralstem trial manager learned of failed results and tipped her partner, who sold his shares. The stock fell about 50% when the news broke.3 And, more recently, the SEC and DOJ charged a consultant who saw C4 Therapeutics trial data and bought shares before the stock jumped more than 100%.4
Life sciences firms hold a lot of secret data. That makes them prime targets for insider trading probes.5 Regulators track trades around key events such as trial results and FDA rulings.
A New Venue
In 2026, Kalshi and Polymarket began to take bets on FDA rulings and drug trials.6 Kalshi launched its biotech markets on July 16. They cover Phase 3 results and full FDA approvals.7 Polymarket has had such bets since as early as May.
Researchers, doctors, and patients have raised alarms. They fear study results could be harmed, insider trades could go unseen, and public trust could erode.8 The pool of people “in the know” is huge. It includes doctors, FDA staff, sponsors, patients, study staff, and review board members.9
Who Polices It?
In the US, CFTC-regulated event contracts fall under the CFTC, while securities trading remains within the SEC’s remit. In February 2026, the CFTC said it has “full authority to police illegal trading” on these markets.10 Its anti-fraud rules were modeled on the SEC’s insider trading rule. In April 2026, the CFTC filed its first insider trading case tied to event contracts.11 Its enforcement chief calls the idea that insider rules do not apply here a “myth”.12 Congress is also weighing more than 10 bills on these markets.13
Still, the split creates gaps. The SEC watches the stock. The CFTC watches the bet. The division of oversight may make it harder to connect suspicious bets with trading in the related shares. A leak may show up in one market but not the other.
The European Angle
The same risks arise for listed European drugmakers. Clinical trial results and regulatory decisions can move their shares even if the relevant bets are placed overseas. Under the EU Market Abuse Regulation (MAR), unpublished trial results may amount to inside information. Since June 2026, intermediate steps in a protracted process generally need not be disclosed before completion, but issuers must keep that information confidential. If confidentiality is lost, earlier disclosure may be required.14 A new EU rule specifically identifies the conclusion of clinical trials and final decisions on drug marketing authorisations as events relevant to disclosure.15
European regulators are also examining prediction markets. In July 2026, ESMA warned that some event contracts may qualify as financial instruments subject to restrictions on binary options, while others may fall under national gambling laws.16 For institutional investors, unusual betting activity ahead of a trial announcement could provide a lead for further investigation. It would not, by itself, prove a leak, a disclosure breach or a viable damages claim.
Why It Matters to Investors
For investors who hold biotech stock, this raises three points. 1) More ways to leak. Insiders now have a second place to profit from trial data. A bet may be less likely to trip the stock market’s alarms. 2) Price signals. Odds on a betting site may move before the company speaks. That may warrant investigation, although changing odds alone do not prove that confidential information was leaked. 3) Company controls. Firms must protect confidential trial data and comply with applicable disclosure rules. Weak controls and slow disclosure are classic themes in securities suits. But a leak alone does not establish issuer liability: investor claims require a legal breach, loss and causation.
What It Could Mean for Securities Suits
Trial news already drives many securities cases. One biotech paid USD 40 million to settle claims that it misled investors about a Phase 2 trial. The SEC sees drug news as material, and firms that misstate trial results can face charges. Prediction markets may add new facts to such cases. Betting odds are public and time-stamped. Unusual shifts in odds could help investigators identify when information may have leaked, but they cannot by themselves establish a class period or loss causation. A CFTC case or a platform probe could also turn up proof of who knew what, and when. But defendants may argue that the truth was already “priced in” on a betting site. Courts have not yet sorted out these issues. This is a developing area of law and certainly an interesting space for investors, counsel, and funder to watch for the first cases and their results.
Deminor continues to closely monitor developments in securities class actions and collective investor litigation across Europe, Asia and Africa. If you would like to discuss the issues raised in this article, a specific securities matter or broader developments in investor litigation, please feel free to reach out to us.
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1 https://www.sec.gov/newsroom/press-releases/2021-264
2 https://www.sec.gov/news/pressrelease/2016-205.html
6 https://www.npr.org/2026/08/07/nx-s1-5922530/patients-betting-kalshi-polymarket-clinical-trials
7 https://cryptobriefing.com/kalshi-polymarket-drug-approval-betting/
8 https://www.nytimes.com/2026/07/28/business/kalshi-polymarket-prediction-market-drugs.html
14 Regulation (EU) 2024/2809, amending the Market Abuse Regulation (EU) No 596/2014. Regulation - EU - 2024/2809 - EN - EUR-Lex
15 Commission Delegated Regulation (EU) 2026/789, specifying relevant events and circumstances for the disclosure of inside information in protracted processes. Delegated regulation - EU - 2026/789 - EN - EUR-Lex
16 European Securities and Markets Authority (ESMA), ESMA reminds firms of existing rules and obligations under binary option measures. ESMA reminds firms of existing rules and obligations under binary option measures amid growing popularity of prediction markets globally
