This invention relates to novel lactams having the formula (I): ##STR00001## to their pharmaceutical compositions and to their methods of use. These novel compounds inhibit the processing of amyloid precursor protein and, more specifically, inhibit the production of A.beta.-peptide, thereby acting to prevent the formation of neurological deposits of amyloid protein. More particularly, the present invention relates to the treatment of neurological disorders related to .beta.-amyloid production such as Alzheimer's disease and Down's Syndrome.