NEW YORK – Merck &Co. profits plunged in the third quarter in the wake of the recall of its Vioxx arthritis drug, and Eli Lilly &Co. expanded a layoff to 1,000 workers because of falling sales of its anti-psychotic medicine Zyprexa. Both show the perils when drug makers rely on a handful of blockbuster medicines.

European pharmaceutical companies also reporting earnings on Thursday that fared better. Novartis AG reported a 21 percent profit rise, thanks to strong sales of the hypertension drug Diovan and cancer drugs. And AstraZeneca PLC said its net profit rose 51 percent even after federal regulators in the United States refused to approve the sale of Exanta, an anticoagulant that had been touted as a potential bestseller.

Lilly shares fell more than 4 percent on Thursday, and Merck’s stock closed down 0.5 percent. But shares of Novartis and AstraZeneca both closed higher, gaining 0.5 percent and 0.9 percent, respectively. And shares of Schering-Plough Corp., which returned to profitability in the third quarter, closed 1.6 percent higher.

“The blockbuster drug model is struggling,” said David Moskowitz, an analyst at Friedman Billings, Ramsey in Arlington, Va. “There are fewer and fewer of them around, and they are under threat” because generic companies are increasingly challenging patents, and insurers are resisting paying for expensive new medicines.

Merck, based in Whitehouse Station, N.J., said its net income in the third quarter slumped 29 percent to $1.33 billion, or 60 cents a share, from $1.86 billion a year earlier. Revenues for the quarter fell 4 percent to $5.54 billion from $5.76 billion a year earlier.

Earnings of Indianapolis-based Eli Lilly rose 6 percent to $755.2 million, or 69 cents a share, in the three months ended Sept. 30, from $714.4 million during the same period a year ago. The per-share earnings beat by a penny the consensus estimate by analysts surveyed by Thomson First Call.

Lilly’s revenue rose 4 percent to $3.28 billion from $3.14 billion despite a 9 percent decline in Zyprexa sales to $1.02 billion. U.S. sales of the treatment for bipolar disorder fell even further, by 22 percent, to $557.3 million, which Lilly attributed to competitive pressure and changes in stocking of the drug by wholesalers.

Lilly also announced it was eliminating about 425 more jobs as part of a restructuring to compensate for falling sales of Zyprexa. It had previously announced 575 layoffs. Chairman and chief executive Sidney Taurel said the increasing public outcry over high drug prices also was behind the restructuring, which he said should save Lilly $150 million in 2005.

Zyprexa, which has accounted for about a third of Lilly’s total revenues in recent quarters, also faces a pending patent challenge in the United States.