French drugmaker Sanofi-Aventis will enter Japan's promising generic drug market by buying a small stake in Nichi-iko Pharmaceutical and forming an alliance with the generics maker, a newspaper said.

Sanofi-Aventis will invest around 5 billion yen (about $56 million) for a stake of almost 5% stake in Nichi-iko, making it the second-largest shareholder after the company's founding family, the Nikkei business daily reported. An official for Sanofi-Aventis in Tokyo declined to comment.

Nichi-iko said in a statement that nothing had been decided, and a spokesman declined to elaborate.

Shares of Nichi-iko, which gets nearly all of its roughly $600 million in annual sales from the production and sale of generic medicines, jumped 4.1% to 3,000 yen, outperforming a 1.4% fall in the pharmaceuticals subindex.

Sanofi has been steering away from just focusing on blockbuster drugs, which are increasingly hard to develop and are vulnerable to patent challenges. It is seeking to expand in areas like generics, consumer health and emerging markets. Japan's generic drug market is growing, spurred on by a government keen to rein in rising healthcare costs. It aims for generics to make up 30% of the drug market by sales volume in the year to March 2013, up from about 20% now.

The solid growth prospects have already prompted Israeli generic drugmaker Teva Pharmaceutical Industries and U.S. drug giant Pfizer to establish plans for a push into the market, which is seen growing to about $5 billion next year.

Ichiyoshi Securities analyst Kazuaki Hashiguchi said the entry of Sanofi-Aventis would help the generics market grow.

"This deal might intensify competition, but if it becomes normal to use generics when patents expire, that could help the whole market expand and help other drug makers too," Hashiguchi said.

The Nikkei said Nichi-iko will issue about 1.5 million shares in a private placement to Sanofi-Aventis as early as June. The two firms will also form a joint venture in Japan under which they will share technology to develop new generic medicines and import Sanofi products into Japan, pending regulatory approval, the Nikkei said. Sanofi-Aventis will hold 51% of the venture and Nichi-iko the remaining 49%, the newspaper said.