Like what the poster said above, drug development is a very long process (Phases 1-3, then Phase 4 which is post-marketing surveillance). If the drug belongs to a therapeutic class where other drugs are already around and have a known side effect profile, then there is a big chance that the side effects of the new drug will be similar, albeit of a different severity (e.g., less drowsiness for the newer antihistamines). When they do in vitro and animal testing, they find out some of the side effects then. Then they test the drug in a few healthy people then in a lot of people (thousands) both healthy and with varying diseases. When the sample size is that big, you are bound to find many side effects, some related to the drug, some unrelated to the drug.
For your second question, you can change the dose or and dosing schedule of the drug, you can administer other drugs that minimize the side effects, you can have a list of other drugs to avoid taking simultaneously with the drug, or a list of disease conditions, age limits, genetic factors, etc that should avoid taking the drug.
For your third question, if the benefit outweighs the harm, then the drug is approved. For example, if you were to die of cancer and the chemotherapy drugs have really bad side effects, then it would benefit you to take the drug that saves your life and accept the risk of side effects.
They do it in may steps
Step 1 is just use common sense and cell studies to figure if it’s dangerous
Step 2 try it on animals and get an idea if it works and/or has side effects
Step 3 try it on a couple people, see if it harms them, don’t care if it works, capture the HUGE side effects here
Step 4 try it on a few more people, see if it works, also captures BIG side effects
Step 5 try it on LOTS of people, see if it works better than what’s out there – hopefully here we have so many people that it captures LOTS of the side effects, and if there are too many it doesn’t go to market. If it passes, it goes to market
Step 6 it’s sold on the market, millions of people use the drug, there’s still reporting back to the pharma company about side effects. If there are too many, take it off the market.
Basically they look for side effects in a step wise manner and step back if they find a problem. If there is a bad side effect, they can look into why that is, and try to design a drug that doesn’t cause problems
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