It would be taken once a day before breakfast and would cost only 20p a day. The lozenge could be sold over-the-counter in as little as two years.
It would prime the immune system to attack every cold and flu bug including 'normal' winter flu, swine flu and bird flu.
The lozenge, which tastes like a sweet and dissolves in the mouth, could be used to clear up sniffles in healthy people and prevent life-threatening infections in the elderly and in asthma and cystic fibrosis sufferers.
It has already been tested on people and the first results are due within weeks.
Researcher Professor Manfred Beilharz said: 'This is the golden fleece everyone has been looking for.'
The Veldona lozenge contains tiny amounts of interferon alpha, which was nicknamed the 'Crown jewel' of virology when it was discovered 50 years ago.
Interferon alpha is a protective protein that the body naturally makes when attacked by a virus. When the lozenge dissolves in the mouth, the protein is released and the immune system is tricked into thinking there is a bug nearby and gets ready for a fight.
Professor Beilharz, who has devoted 15 years to the research, said: 'The outposts of the immune system say, "Hey, we've got a virus, let's gear up and get ready for it before the infection spreads too far."'
The professor has already shown that very low doses of the protein can save the lives of mice exposed to an otherwise lethal cocktail of the flu virus.
Tamiflu, which has been stockpiled by governments around the world to treat swine and bird flus, costs up to £5 a tablet. The lozenges could cost as little as 20p each, or £6 a month.
Professor Beilharz said: 'This medicine is quite cheap to manufacture and very low dosage and doesn't seem to have any side-effects of any significance.'
Unlike the flu vaccine, which has to be frequently reformulated to fight whichever strains of the bug are circulating, it would be a 'one-size-fits all' drug.
This is because interferon alpha primes the immune system to fight a range of viruses, including all cold and flu bugs.