Sponsor decision.

This is a Phase 2a, multi-center, randomized, double-blind, placebo-controlled study evaluating the safety, efficacy, and pharmacokinetics (PK) of AL-3778 in combination with Peg-IFN in subjects with Hepatitis B e antigen (HBeAg) positive CHB virus infection who are treatment-naïve.

The study will consist of a screening phase , a double-blind treatment phase followed by treatment with Peg-IFN alone, and a post-treatment follow-up phase.

Approximately 30 subjects to complete the study. Eligible subjects will be randomized into 2 treatment arms in a 2:1 ratio (active:placebo) to receive one of the following treatments:

• Arm A: Peg-IFN plus AL-3778 (N=20)
• Arm B: Peg-IFN plus matching placebo (N=10)

Inclusion Criteria:

1. A female subject must be of non-childbearing potential

2. Subjects must have CHB infection, documented by serologic profile consistent for CHB infection at screening:

   1. serum HBsAg positive (for >6 months)
   2. serum IgM anti-HBc negative

3. Subjects are treatment-naïve and are serum HBeAg positive with:

   1. serum HBV DNA >=20,000 IU /mL at screening
   2. HBsAg >250 IU/mL at screening
   3. ≥2× upper limit of normal (ULN) ALT and ≤5× ULN at screening

Exclusion Criteria:

1. Positive test for hepatitis A virus immunoglobulin, hepatitis delta antibody (Ab), hepatitis C Ab, human immunodeficiency virus (HIV) Ab and/or evidence of clinically relevant active infection that would interfere with study conduct or its interpretation would also lead to exclusion.

2. Positive test for anti-HBs antibodies and anti-HBe antibodies.

3. Subjects must have low levels of liver fibrosis that is classified as Metavir F0-F2

4. Any history or current evidence of hepatic decompensation

5. Subjects must have absence of hepatocellular carcinoma

6. Subject with evidence of retinopathy on retinal fundus photographs

7. Exclusions related to interferon use for the purposes of this study

8. Subjects with one or more of the following laboratory abnormalities at screening

   1. serum creatinine elevation >1.0× ULN
   2. hemoglobin <11 g/dL [males], <10.5 g/dL [females]
   3. platelet count <125× 109 cells/L
   4. absolute neutrophil count <1.0× 109 cells/L
   5. total bilirubin >1.0× ULN; unless known Gilbert's Disease or Dubin-Johnson Syndrome

9. Subjects having received an investigational agent or investigational vaccine, or having received a biological product within 12 weeks or 5 half-lives (whichever is longer) prior to baseline (first intake of study drugs).