The first stage when a new drug is developed is to model how it is expected to behave in the human body, test animals and individual cells on a computer. This model is based on how similar drugs work, and how they administer the drug (i.e. is it a tablet you swallow, or is it injected into the blood stream or muscles).
The next stage would be to test on individual cells in a lab. The wold first add it to healthy cells, to make sure that it has no unexpected effects. They may then test it with cells that are damaged in the same way as the disease that it is supposed to treat, to see if it can heal or protect the cell in the way it is predicted to.
If the drug appears to be successful in cells it is then tested in animals, usually mice or rats to determine if it is toxic in mammals, and that it has the desired effect on animals with a version of the human disease. In the UK all drugs by law have to be tested on animals, however it is illegal to test cosmetics or tabacco products on them.
If all the previous stages have been successful then the drug will be tested on humans. At first it will be tested on healthy volunteers to see if there are any side effects. If no serious side effects are detected, then it will be tested on patients with the disease it is supposed to treat. This stage will see if the drug actually works as predicted, and if it more successful than current treatments available.
After multiple human trials the drug may be approved to be released to the public.
This whole process takes many years, and is extremely expensive.