It has been only a year since Japan's Takeda Pharmaceutical Co. (4502.TO) bought Millennium Pharmaceuticals for $8.8 billion, but now the Cambridge, Mass., biotech is looking to make deals of its own.

Takeda is Japan's biggest drug maker by sales, and Millennium heads their global oncology operations with 14 candidates in the combined pipeline. Those are in early development, and Millennium Chief Executive Deborah Dunshire is looking for deals to add mid-stage and late-stage compounds - but notes some drug makers refuse to accept that depressed market valuations are here to stay.

"I don't see us acquiring a very large company," she said in an interview at the American Society of Clinical Oncology annual meeting in Orlando. She noted Takeda would avoid deals such as Pfizer Inc.'s (PFE) pending $68 billion buy of Wyeth (WYE) because they don't create value for shareholders over the long run.

"It will probably be smaller, single product acquisitions," she said, but noted it's possible they could make a larger transaction in the $10 billion range.

Millennium has maintained its independence within Takeda and was the driving force behind the recent buy of IDM Pharma Inc. (IDMI) for $75 million, Dunshire said.

Millennium's flagship product is Velcade, a blood cancer treatment sold with Johnson & Johnson (JNJ) that had global sales of more than $1 billion in 2008.

Dunshire is open-minded when considering deals, and is using the ASCO meeting to talk to potential partners or acquisition targets, but declined to name specific companies.

Though the economy and difficult funding environment has depressed the valuations of small drug developers across the board, Dunshire said it doesn't necessarily mean companies can be bought at cheaper valuations.

"Some of the companies out there may have depressed valuations, but their boards are not willing to accept a premium over that low valuation," she said.

Dunshire said some companies believe they can weather the financial storm, but have overly optimistic estimates of a drug's potential use and pricing.

"There have been certain deals that we've looked at, where the company had valuations in mind that we just didn't think the product could support," she said.

She believes the stock market has permanently reset its views toward smaller drug companies - something executives for former high-flyers may have a hard time accepting. However, Dunshire admits there is probably something more at work.

"They probably are delusional that [their valuation] is going to get back to exactly where it was before, but there is a down draft that may have nothing to do with the fundamentals of their company," Dunshire said.

-By Thomas Gryta, Dow Jones Newswires; 201-938-2053; thomas.gryta@dowjones.com