Updated with new information.

LEXINGTON, Mass. ( TheStreet) --Hedge fund manager Martin Shkreli has taken a 5.8% ownership stake in Amag Pharmaceuticals ( AMAG), an escalation of his effort to wrest control of the struggling drug maker and stop a planned merger with Allos Therapeutics ( ALTH).

Shkreli must still demonstrate that he has the funds necessary to make good on his previously announced $18-a-share offer for Amag. But Shkreli's purchase of 1.25 million Amag shares -- disclosed for the first time in a regulatory filing Friday night -- may persuade on-the-fence shareholders to accept his proposals and reject Amag's plans to merge with Allos.

Amag is fighting a two-front war at the moment. First, it must secure the support of a majority of its shareholders at an Oct. 21 vote to complete the Allos merger. Second, Amag is being force to fend off Shkreli's activism, including a proposal seeking shareholder approval to remove six of the seven directors on Amag's board and replace them with five MSMB nominees who would put a stop to the Allos merger.

Adage Capital Management and Palo Alto Investors, owners of 17.5% and 15% of Amag, respectively, are still said to be opposing the Allos merger because of concerns about the financial and strategic rationale behind the deal, according to sources familiar with the situation.

Amag will have a very difficult time completing the Allos merger without the support of Adage and Palo Alto. Whether the two largest Amag shareholders also support Shkreli's efforts to shake up Amag's board is not clear, but killing off the Allos merger will almost certainly provoke significant changes at Amag.

"Voting no on the Allos deal is a referendum against Amag's management team," said an Amag shareholder who asked not be identified but is voting to stop the Allos merger.

If the current Amag board survives, directors will face tremendous pressure to fire Amag CEO Brian Pereira and put the company up for sale. For all intent and purpose, a sale of Amag will really be a simple auction of the company's only asset Feraheme, an injectable iron replacement therapy for anemia in patients with chronic kidney disease.

"Feraheme is a best-in-class product which could be a significant cash generator for a larger company with an existing commercial infrastructure," said the Amag shareholder. He mentioned Amgen ( AMGN), Johnson & Johnson ( JNJ), Takeda and Mitsubishi as potential Feraheme buyers.

Feraheme's value to a potential buyer is likely to increase if results are positive from an ongoing phase III study in iron deficiency anemia.

If Shkreli succeeds in replacing the Amag board with his handpicked directors, the Allos deal will also die and Pereira's reign as CEO is all but cetain to end, but Shkreli still has to submit a formal tender offer if he wants to make good on his plans to acquire the company.

Allos, which sells the lymphoma drug Folotyn, will also be searching for a new buyer if the Amag deal isn't approved. Spectrum Pharmaceuticals ( SPPI) has already offered $2.20 a share for Allos but could lower that offering price given Allos' desperate situation.

In fact, Spectrum may have already taken its first step towards trying to get Allos cheaper. Monday morning, Allos said the undisclosed bidder -- widely known to be Spectrum -- withdrew its $2.20-a-share offer, leaving Amag as Allos' only current option.

Amag and Allos announced their merger agreement on July 20 in which Allos shareholders were offered a fixed ratio of 0.128 shares of Amag common stock for each share of Allos common stock they own. At the time, the deal valued Allos at $2.44 a share, or $260 million total.

Concerns about the deal have been raised, forcing the stock prices of both companies to drop significantly and reducing the value of the deal to Allos shareholders.

In Monday trading, Amag shares are up 33 cents, or 2.5%, to $13.50. Allos shares are down 26 cents, or 15%, to $1.48.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.