The formation of molecularly dispersed amorphous solid dispersions by the hot-melt extrusion technique relies on the thermal and mechanical energy inputs, which can cause chemical degradation of drugs and polymeric carriers. Additionally, drug degradation may be exacerbated as drugs convert from a more stable crystalline form to a higher energy amorphous form. Therefore, it is imperative to study how drug degrades and evaluate methods to minimize drug degradation during the extrusion process. In this work, gliclazide was used as a model thermally labile drug for the degradation kinetics and process optimization studies. Preformulation studies were conducted using thermal analyses, and liquid chromatography–mass spectroscopy to identify drug degradation pathways and to determine initial extrusion conditions. Formulations containing 10% drug and 90% AFFINISOL™ HPMC HME 100LV were then extruded using a twin screw extruder, and the extrudates were characterized using X-ray powder diffraction, modulated dynamic scanning calorimetry, and potency testing to evaluate physicochemical properties. The energies of activation for both amorphous gliclazide, crystalline gliclazide, and gliclazide solution were calculated using the Arrhenius equation to further guide the extrusion optimization process. Preformulation studies identify two hydrolysis degradation pathways of gliclazide at elevated temperatures. The activation energy study indicates a significantly higher degradation rate for the amorphous gliclazide compared to the crystalline form. After optimization of the hot-melt extrusion process, including improved screw designs, machine setup, and processing conditions, gliclazide amorphous solid dispersion with ∼95% drug recovery was achieved. The ability to process thermally labile drugs and polymers using hot-melt extrusion will significantly expand the possible applications of this manufacturing process.