This subject is called pharmacokinetics. How quickly a drug is metabolised and/or cleared from the body. There are various ways to work this out.

I don’t want to say too much here as anything further from me is from memory of a subject I don’t know too much about. But searching pharmacokinetics will give you information on that subject.

It may be worked out in animals, prior to human testing. It could be worked out in the lab via experiments examining enzymatic activity. Metabolism could be worked out by monitoring blood concentrations depending on the drug. Clearance could be worked out by stool, urine monitoring.

It’s a complicated area that I have had maybe two lectures on, so don’t take what I say as gospel

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During phase one of drug trials the medication is administered to healthy volunteers in a controlled setting. These volunteers undergo regular, timed testing, particularly blood tests, to see how fast the drug is eliminated from their body. Once you know the half life of the medication you can make determinations of how often the drug has to be taken.

Lethal dosis needs to be determined, which is called LD50 (meaning at this dosage 50% of test animals died). Then lower dosages are tried to show effects. The usable dosage is called "therapeutical range" which describes the dosage range in which the desired effect takes place without being toxic. The broader this range, the safer the med. Many meds have a tight range which means the dosage needs to be monitored and adjusted closely (e.g. certain seizure meds).

You are actually asking 2 questions. The frequency of dosing for effect, and maximum dosing to avoid problems. The labeling for the latter is not based solely on pharmacokinetic data. Rather, a mix of data, opinion and (at least in the US) the FDA's assumption that all users are dumb as a bag of hammers.

With modern understanding of pharmakinetics, researchers already have an idea of how drugs will act in mammals based on already understood compounds in or similar to the study drug. They can sometimes already tell what the half life is as well (this is how quickly the chemicals decay, or essentially stop working), so they know how long it will take for the drug to stop having an effect though it can behave differently in the body.

Study drugs are first administered to animals to determine potential AEs (adverse events, like side effects) and continue to study the half life by collecting blood and/or urine at specific intervals of time. Say they give the study drug at 8:00 am, they may draw blood or collect urine every 2 hours over the course of 12 hours. There will be less of the drug as time goes on, and they are using the blood/ urine samples to determine specifically how quickly it is passed though the body and how strong/ effective the medication is based on amount present in the sample.

Then they do the same thing in volunteer humans that get paid to be in a trial. They follow very strict procedures, the volunteers stay at the research facility 24/7 for a set period of time (could be a day could be 40 days) and are given the same food. The procedures (which includes when they administer the study drug or placebo, when they take blood or urine, when they take vital signs, EKG, weight, etc) are written out by the pharmaceutical company who developed the drug and are followed down to the second. Volunteers even need to pee at specified times. All adverse events (side effects) are recorded and there are usually follow up visits after the study volunteer is done with the initial stay to continue monitoring until the drug is no longer affecting them.

There are multiple arms of in-human studies where they do the same thing but with different diets, ethnicities, etc to see how the drug may be impacted by different factors.

So yes, they do a lot more than just blood testing and it is at very, very specific intervals of time. Usually vital signs, blood, urine, heart, etc are tested at specific times.

A lot of the pharmacokinetics have to do with half lives. If it has a short half live generally it will be dosed more often and vice versa. Saying that there are a bunch of small things that also change it. You have to factor in if it is hydrophobic/hydrophilic or lipophobic/lipophilic. Does it leave the blood stream or not. Does the liver or kidney metabolize or remove it. Does it cross into the brain. And more...

Someone else mentioned phase 1 trials. That is where they do a lot of this. Give a dose check blood levels every 30 min and check the level.

Saying that they can make ER (extended release) or DR (delayed release) versions that release over time so it can be taken less often.

Some antibiotics have different types. Some have to keep the blood concentration over a certain level the whole time. Some only need to go over a certain level for a certain length of time every so often.

Also, specifically for OTC meds often times the OTC dose is not the max but the max is set when it is approved for OTC by the FDA. For instance ibuprofen will have max dosing lower than the prescription strength. Omeprazole will say only to use for 14 days before you see a Dr. There are legal or safety reasons for that.