A drug based on a traditional Asian tonic was being hailed yesterday as a potentially exciting new treatment for senility and a reason to buy shares in Phytopharm, the drug development company.

The group, run by its Buddhist chief executive Richard Dixey, unveiled a new chemical compound he says reverses damage to, and the ageing of, braincells and could be used to treat Alzheimer's and Parkinson's diseases and dementia.

Phytopharm shares jumped by more than a third on news the drug has been licensed to a Japanese pharmaceuticals group for up to £20m, with the promise of royalties on top.

The drug was brought to the company by a group of Asian scientists who had been working on extracts of a traditional regional "tonic", and Phytopharm has since created a synthetic version of the chemical.

Mr Dixey said the drug looked as if it was able to reverse the degeneration of braincells which was caused by toxins and ageing.

"This is the first time we have been able to reveal the value of this platform. Asia represents 15 per cent of the world pharmaceuticals market, so the deal values this drug at $200m (£125m) on a global basis. We still only have Phase I data, so by the time we have Phase II data it could be worth 10 times that," he said.

Yamanouchi is paying £2m upfront and further milestones as the product progresses through human trials, in return for the right to develop and market the drug for use against Alzheimer's disease in Asia.

The group will pay for a Phase I study in the region, and its cash will fund Phytopharm's own Phase II trials in the West.

Although analysts cautioned that new drugs have a high chance of failing their trials, Mike Mitchell at Evolution Beeson Gregory was among those recommending Phytopharm shares yesterday.

Mr Mitchell said: "This is just the kind of deal Phytopharm should be doing. The licence is restricted territorially to Japan and some other Asian countries, and in this way the company retains the ability to licence the same drug in other territories, and to extract further value down the line."

Investors will hope the product, which still has the codename PYM50028, will not go the same way as other potential new wonderdrugs. Phytopharm's baldness treatment turned out to be less effective than E45 moisturising cream. Then tests showed its treatment for canine arthritis made dogs smell of urine.