It has been a rough week for GlaxoSmithKline (NYSE: GSK). Shares are down more than 10% after it released a disappointing earnings forecast for 2008.

For 2007, Glaxo's revenue was up 2% at constant exchange rates. The most obvious culprits for these disappointments are the safety issues that popped up with type 2 diabetes drug Avandia, but Glaxo also experienced exchange-rate movements that turned what would have been a 3% gain in net income at constant exchange rates into the 3% loss it experienced.

Don't be fooled by what Glaxo touts as a 10% increase in earnings per share for the year. That figure is based on pro forma numbers and helped by a large stock buyback that boosts earnings per share just by spreading its income over a smaller share count. For 2008, Glaxo gave guidance for a "mid-single digit percentage decline" in pro forma earnings per share because of continued declines in Avandia sales and a few products facing generic competition.

As for its pipeline, Glaxo plans to submit a response to the Food and Drug Administration in the second quarter for the complete response letter it received in December for cervical cancer vaccine, Cervarix. This should mean there will be another FDA decision on the drug no later than the end of the year. Glaxo also now has 34 compounds in at least phase 3 testing.

Unlike Pfizer (NYSE: PFE), which it's often compared to, Glaxo has a strong late-stage pipeline. Even though the setbacks with Avandia will lead to what looks to be a rough 2008, Glaxo should do well in the long run. Glaxo's situation is more comparable to Merck's (NYSE: MRK) four years ago, after one of its top drugs, Vioxx, was stung by safety problems. Merck bounced back thanks to a strong pipeline and Glaxo should, too.

Even better, after the company just boosted its dividend to $0.63 a share per quarter, investors are now being paid a 6% yield while they wait for a turnaround. Considering that multiple studies have shown that more than two-thirds of stock market returns come from dividends, Glaxo's combination of a high yield and a strong pipeline should get long-term-oriented investors excited.

GlaxoSmithKline is an Income Investor pick. Take a look at our newest picks with a free 30-day trial of the newsletter.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Pfizer is an Inside Value pick. The Fool has an A+ disclosure policy.