One sure-fire way to please investors is to raise earnings guidance for the year. On Friday, shares of Merck (NYSE:MRK) were up over 8% after the pharmaceutical giant did just that and also had a class action lawsuit thrown out against it on the same day.

The new guidance is for earnings to come in at $2.75 to $2.85 per share for 2007. This is the second time Merck raised its earnings estimates for the year, after first estimating 2007 earnings to come in at $2.36 to $2.49 per share back in December.

Not withstanding a recommendation against its cox-2 inhibitor pain drug candidate, Arcoxia, last week by an FDA advisory panel, Merck has had a long string of positive regulatory, clinical trial, and competitive environment changes this year. It's been gaining the upper hand on the majority of Vioxx lawsuits, and its novel diabetes compound Januvia has had a strong introduction to the market.

When Merck first raised earnings guidance in February, I figured another upwards revision was probably in the works, considering that Merck had probably penciled in Novartis' (NYSE:NVS) rival diabetes treatment Galvus being on the market this year and affecting Januvia sales.

The upward earnings revision is the culmination of the above encouraging developments and provides a nice headwind going into a much more difficult second half of this year and 2008. That's when Merck will be facing generic competition on more of its top products and a new competitor against its potential blockbuster human papillomavirus vaccine, Gardasil.

Merck reports final first-quarter financial results on Thursday, and while the valuation on shares of Merck isn't as compelling as it was several months ago, investors could do worse than looking at this best in class pharma.

Looking for more Foolish drug stock coverage? Check out the Fool's market-beating Rule Breakers newsletter. You can check out all our recommendations as well as get access to our message boards and exclusive content with a 30-day free trial.

Fool contributor Brian Lawler once raised the roof at a party and does not own shares of any company mentioned in this article. Merck is a former Income Investor selection. The Fool has a disclosure policy.