The federal government, for only the second time, yesterday approved for sale a human drug produced through gene-splicing, a method of manipulating living cells that is now delivering products after years of promises.

The Food and Drug Administration approved Protropin, a human growth hormone produced by Genentech Inc., of South San Francisco, the first company founded to develop revolutionary methods of genetic engineering.

The approval of Protropin provides the only commercially available source of the hormone used for treating growth-hormone deficiency, a pituitary gland disorder that causes severe short stature in more than 10,000 children in this country. The company also has begun tests to determine if the hormone is effective in treating another growth disorder that is caused by a chromosomal abnormality.

The FDA decision marks milestones for both the company and the biotechnology industry.

Genentech has become the first biotech company to develop, manufacture and market a pharmaceutical product of gene-splicing technology -- in which a gene for producing a desired substance is inserted into a living cell, directing the cell to produce that substance.

The only other commercially available drug produced through gene-splicing is Humulin, or human insulin, which is made through technology pioneered by Genentech and licensed to Eli Lilly & Co., the pharmaceutical giant.

Both drugs mark the gradual maturing of the biotech industry, which is starting to turn its long-touted potential into real products and profits.

"We've come a long, long way in convincing people this technology could work," said M. Kathleen Behrens, an analyst with Robertson, Colman & Stephens, of San Francisco. When Genentech was founded in 1976, "no one was convinced" the technology would work or be commercially viable, she said.

The technology not only works, but in some cases produces a superior product to the alternatives available. Before Humulin was approved, the only insulin available was derived from pig and cow glands, which caused problems for some patients. Protropin is now the only human growth hormone available. A product derived from the pituitary glands of human cadavers was taken off the market last May after it was linked to three deaths from a rare brain viral illness, called Creutzfeldt-Jacob disease.

A vaccine against the Hepatitis-B virus is expected to be the next gene-spliced drug to win FDA approval, which would be easier to produce in large quantities than the vaccine now available that is derived from the blood of human carriers of the virus.

The approval of Protropin "illustrates the advantages of contemporary biotechnology," said FDA Commissioner Frank Young. "Approval of this new biosynthetic product represents yet another success in this country's newest genetic engineering technologies and fulfills a genuine need of many of our pediatric patients."

Genentech has six other genetically engineered drugs on the way to market. They include interferons and other potential anticancer agents, a blood clot dissolver, and a blood-clotting protein called Factor VIII, which is currently produced from donated blood and has led to cases of AIDs in hemophiliacs.

Protropin is important medically to the 10,000 to 15,000 children in this country who suffer from growth-hormone deficiency, according to the Human Growth Foundation, a nonprofit medical organization based in Bethesda.

The new drug has been the only human growth hormone commercially available since spring, when the naturally derived growth hormone was pulled off the market.

The Food and Drug Administration allowed limited use of Protropin in urgent cases until approving the drug yesterday for general use. More than 300 children were treated with Protropin during the interim, far short of the 4,000 a year who normally undergo human-growth-hormone therapy, Swanson said.

"We're delighted," said Denise Orenstein, executive director of the Human Growth Foundation. "This is going to be very meaningful to many families with children who can benefit, who will be given a chance to grow."

Growth-hormone deficiency, a disorder that can prevent a child from growing more than four feet tall, is one treatable cause of short stature. It occurs when the pituitary gland at the base of the brain fails to secrete enough of the hormone, which stimulates growth. Children with the condition appear normal at birth, but do not grow as quickly as other children. The disorder affects three times as many boys as girls.

Treatment with growth hormone is only effective during a child's growth years, and the hormone will not cause a person to grow taller than his or her genetic potential. During clinical trials, Protropin was found to increase the growth rate of some children by up to three times.

Growth-hormone deficiency makes up only 5 percent of all growth disorders. The hormone is not used to treat growth problems caused by genetic abnormalities or bone disorders, but Genentech is conducting tests to determine if it is effective in treating short stature caused by Turner's syndrome, which affects 8,000 female children and is caused by chromosomal defect.

The approval of Protropin is more important "symbolically" than financially for Genentech, said Scott R. King, an analyst with Montgomery Securities. The market for the product is small compared with other drugs the company is developing.

Genentech can expect Protropin sales of $20 million to $30 million a year, King said, differing with the company's estimates of $30 million to $40 million. By contrast, its blood clot dissolver, now in clinical trials, could have potential sales in the hundreds of millions of dollars, he said.

Protropin's sales by either estimate would be a boost for Genentech, which reported 1984 profits of $2.7 millon on revenue of $70 million. Swanson said the added revenue will help support the development of other products.

About 200 biotech companies have been formed since the late 1970s to develop new methods of genetic engineering. Through gene-splicing, cell fusion and other methods of manipulating living cells, these companies are exploring new ways to treat disease, clean up oil spills, process food and master agriculture.

Virtually all biotech companies have merged or formed partnerships with large corporations to develop their products, because of the high costs of research, manufacturing, winning government approval and marketing. The small companies trade technical innovation for royalties, capital or marketing muscle, as Genentech did with Humulin.

Genentech now has proven that a gene-splicing company can go all the way to market on its own, industry analysts said.

"I'm really excited," said Robert A. Swanson, chief executive officer and founder of Genentech. "This is a realization of one of the goals I set up at the founding of the company."