There's nothing small biotech companies want more than to have one of the giants like Amgen (NASDAQ:AMGN) or Genentech (NYSE:DNA) partner with them. Tercica (NASDAQ:TRCA) got its wish earlier this week when it struck a deal with Genentech.

The partnership involves combining Genentech's human growth hormone Nutropin AQ with Tercica's insulin-like growth factor Increlex for treating patients with short stature, adult growth hormone deficiency (AGHD), and potentially other metabolic disorders. Pre-clinical studies have demonstrated a synergistic effect by combining the two products, compared with a therapy of either injectable alone. Combining the two into one product will cut in half the needle pokes that the children have to endure.

Tercica plans to start two phase 2 clinical trials in 2008: one for short stature and another for patients with AGHD. The two treatments likely will require different formulations -- ratios of the two products -- so Tercica will have to gain Food and Drug Administration approval for both; there won't be any off-label prescriptions by doctors.

As part of the deal, Genentech will purchase $4 million in Tercica stock for about $5.65 per share. Some investors think that Genentech is underpaying; the stock traded above $6.00 after the news came out. The entire deal could be worth up to $53 million to Tercica if all the milestones are met.

The deal seems to be set up in Genentech's favor. It will get to see most of the phase 2 trial data before it needs to make a decision about opting into the deal and paying the development costs for the products. Opting in would give Genentech the rights to co-promote the products after they received regulatory approval. If Genentech chooses not to opt into the deal, it would receive royalty payments from Tercica if it's able to develop the product on its own.

Icrelex, which gained marketing approval early last year, is Tercica's only product. Icrelex produced $1.1 million in sales during the first quarter of the year, but Tercica remains unprofitable due to research and development costs of $4.9 million and selling, general, and administrative expenses of a whopping $9.6 million. In October, the company licensed the worldwide rights -- sans a few countries outside the U.S. -- to Ipsen, which is based in France. It's now running a clinical trial testing Icrelex's ability to treat children with primary IGF-1 deficiency to try to increase the labeling indications for the product.

Tercica expects a response at the end of August on the New Drug Application that it submitted to the FDA for Somatuline Autogel. Even if the company gains regulatory approval for its second product, it doesn't expect to become profitable until 2010. Tercica's biggest problem is that it's developing products for diseases with small -- no pun intended -- patient populations. Even with partnerships from the big brothers of the biotech world, it's unlikely to ever have a blockbuster drug.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any companies mentioned in this article. The Fool's disclosure policy reached blockbuster status a long time ago.