Researchers from the University of Sydney said the new treatment has shown very promising results in animal experiments.
The compound is called picolinic acid, a product derived of the essential amino acid tryptophan.
Lead researcher Professor Gustavo Duque said the odourless compound can be easily dissolved in water.
"This is a major step in the development of a completely new type of medication for osteoporosis. Instead of stopping bone destruction, our compound instead stimulates bone formation," he said.
"When this medication was administered in the water of normal and menopausal mice, picolinic acid strongly and safely increased bone mass in normal mice and rescued bone from menopause-associated osteoporosis," he said.
Osteoporosis is a progressive bone disease that is characterised by a decrease in bone mass and density which can lead to an increased risk of fracture.
Duque said the team had patented the compound and will expand their trials to humans in the near future in a bid to address the increasing numbers of people developing the condition.
"Despite the current treatments available, by 2050, the worldwide incidence of hip fracture in men is projected to increase by 310 per cent and 240 per cent in women.
"This increase is explained by the low rate of diagnosis and treatment for osteoporosis, as well as some concerns about the potential side effects of the current treatments," Duque said.
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