Developments in biotechnology and genomics are providing a biological basis for the heterogeneity of clinical course and response to treatment that have long been apparent to clinicians. The ability to molecularly characterize human diseases presents new opportunities to develop more effective treatments and new challenges for the design and analysis of clinical trials. In oncology, treatment of broad populations with regimens that benefit a minority of patients is less economically sustainable with expensive molecularly targeted therapeutics. The established molecular heterogeneity of human diseases requires the development of new paradigms for the design and analysis of randomized clinical trials as a reliable basis for predictive medicine. We review prospective designs for the development of new therapeutics and predictive biomarkers to inform their use. We cover designs for a wide range of settings. At one extreme is the development of a new drug with a single candidate biomarker and strong biological evidence that marker negative patients are unlikely to benefit from the new drug. At the other extreme are Phase III clinical trials involving both genome-wide discovery of a predictive classifier and internal validation of that classifier. We have outlined a prediction-based approach to the analysis of randomized clinical trials that both preserves the Type I error and provides a reliable internally validated basis for predicting which patients are most likely or unlikely to benefit from the new regimen. Copyright © 2012 John Wiley & Sons, Ltd.