Personalised medicine describes the practice of tailoring medical care to the individual characteristics of each patient. Fundamental to this practice is the identification of markers associated with differential treatment response. Such markers can be identified through the assessment of treatment effect modification using statistical methods. Randomised controlled trials provide the optimal setting for evaluating differential response to treatment. Due to restrictions regarding sample size, study length and ethics, observational studies are more appropriate in many circumstances, particularly for the identification of markers associated with adverse side-effects and long term response to treatments. However, the analysis of observational data raises some additional challenges.The overall aim of this thesis was to develop statistical methodology for the analysis of observational data, specifically primary care databases, to identify and evaluate markers associated with differential treatment response. Three aspects of the assessment of treatment effect modification in an observational setting were addressed. The first aspect related to the assessment of treatment effect modification on the additive measurement scale which corresponds to a comparison of absolute treatment effects across patient subgroups. Various ways in which this can be assessed in an observational setting were reviewed and a novel measure, the ratio of absolute effects, which can be calculated from certain multiplicative regression models, was proposed. The second aspect regarded the confounding adjustment and it was investigated how the presence of interactions between the moderator and confounders on both treatment receipt and outcome can bias estimates of treatment effect modification if unaccounted for using Monte Carlo simulations. It was determined that the presence of bias differed across different confounding adjustment methods and, in the majority of settings, the bias was reduced when the interactions between the moderator and confounders were accounted for in the confounding adjustment model.Thirdly, it has been proposed that patient data in observational studies be organised into and analysed as series of nested nonrandomised trials. This thesis extended this study design to evaluate predictive markers of differential treatment response and explored the benefits of this methodology for this purpose. It was suggested how absolute treatment effect estimates can be estimated and compared across patient subgroups in this setting. A dataset comprising primary care medical records of adults with rheumatoid arthritis was used throughout this thesis. Interest lay in the identification of characteristics predictive of the onset of type II diabetes associated with steroid (glucocorticoid) therapy. The analysis in this thesis suggested older age may be associated with a higher risk of steroid-associated type II diabetes, but this warrants further investigation. Overall, this thesis demonstrates how observational studies can be analysed such that accurate and meaningful conclusions are made within personalised medicine research.