When a medicine is prepared by a biologist,then where does he first test on? And how does he know that this is the exact combination for a disease to get cured? Does he test that medicine on a human or specific sample of blood? I'm an engineering student but still I'm curious to know.
This is a very broad question, so I won't attempt to answer it fully. Instead, I'd recommend starting out by reading the Drug Development and Drug Discovery articles on Wikipedia, and if you have more specific questions after that then feel free to ask them here.
Basically, new drugs (either small-molecule "chemicals" or large-molecule "biologicals") are discovered in myriad ways, from pure accidents (see Penicillin) to specifically-targeted research. Once a lead compound is identified, it is put through a series of biochemical assays to determine, for example, if it inhibits certain enzymes of interest. From there, it moves into testing by cell-based assays using both normal cells and disease-specific models. All the while, investigators are looking for high specific activity (potency), low toxicity, and minimal off-target effects.
If a compound or group of them looks promising in these in vitro assays, experiments then move into animal models. The goals are similar here - high activity, low toxicity, and few (if any) side effects. The experiments get progressively more complex, with different endpoints depending on the exact aspect being studied.
It is only after extensive animal testing that a compound will be tested in humans. There are different phases of testing, each with different criteria, dosing patterns, number of patients, and reporting rules. The link I just gave explains each phase briefly.
Hopefully this is enough to get you started. Like I said earlier, if you have more specific questions after reading through all the references, please let us know.