Hot-melt granulation (HMG) by twin screw extrusion is a novel technology for the continuous processing of pharmaceuticals but confidence must still be gained regarding whether the environment affects drug properties. In this preliminary study, granulation was studied for a model product containing lactose monohydrate and active ingredients of differing water solubility, namely ibuprofen versus caffeine. The formulations were granulated at 220 rpm and 100°C with polyethylene glycol binders of differing molecular weights and at concentrations between 6.5% and 20%. In terms of granule properties, the low melting point of ibuprofen had a dominant influence by producing larger, stronger granules, whereas the caffeine products were more comparable to a blank containing no active ingredient. Drug degradation was study by differential scanning calorimetry, X-ray diffraction, and high-pressure liquid chromatography. The only detected change was the dehydration of lactose monohydrate for the caffeine and blank products, whereas the lubricating influence of the ibuprofen protected its granules. The short residence time (∼60 s) was consider to be influential in minimizing damage of the drug despite the high temperature and shear attributed to HMG inside a twin screw extruder.