It doesn't surprise me that a small-cap biotech company like Novavax (NASDAQ:NVAX) skyrocketed when the COVID-19 pandemic began. Millions of people will need to be vaccinated against the virus this year and next. The market opportunity is at once vast and risky (as biotech investing often is). Even after the vaccine candidate completes clinical trials, there is always a chance the U.S. Food and Drug Administration (FDA) will reject Novavax's vaccine application.

Novavax has soared from about a $120 million market cap in January to almost a $9 billion market cap today. To many investors, its huge run-up over a short period suggests that Novavax is doomed to slide. That might still happen -- short term price movements are impossible to predict and can be severe. And yet, on top of the amazing boom the company has experienced, it's possible that Novavax will become even more valuable. So let's take a look at the product potential of Novavax, that unprofitable vaccine developer that's jumped 3,200% in 2020.

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Novavax's flu vaccine is easier to put a price on

Novavax's latest forward P/E ratio has garnered some attention, and with good reason. Analysts suggest that investors will have to pay up to 76 times the company's earnings if its coronavirus vaccine candidate can capitalize on its market. We should take this hefty estimate with a grain of salt, because the FDA has yet to approve a single one of its nine pipeline drugs. But regardless of what happens to Novavax's coronavirus vaccine candidate, I do think that there is a high likelihood that its potential influenza vaccine, NanoFlu, will be approved by the FDA.

NanoFlu is a seasonal influenza treatment that could be used to prevent against the flu in adults aged 65 years and older. NanoFlu differs from the conventional flu vaccine in several ways, including that it is not an egg-based therapy. Egg-based vaccines are common, but too often lead to "mismatch" and subsequent poor performance, according to Novavax CEO Stanley C. Erck. NanoFlu achieved all of its primary endpoints in a phase 3 clinical trial that ended in late March, and protected against influenza as well as the standard vaccine.

Novavax could collect almost $1.4 billion in revenue each year from this vaccine alone if it captures even a third of its potential market in the U.S. and Europe. Novavax is confident that the drug could receive licensure via its current accelerated approval pathway as soon as November and that it can outperform the currently accepted influenza vaccine.

Can coronavirus grant money give us a clue about valuation?

Last month, the U.S. government's program to fast-track a coronavirus vaccine, Operation Warp Speed (OWS), awarded Novavax $1.6 billion to help speed manufacturing of its candidate, NVX-CoV2373. Is this validation of the company's science? It's not the same thing as FDA approval, of course, but a lot of investors see this huge grant as a sign that Novavax is on the right track.

Novavax is set to provide 100 million doses of its COVID-19 vaccine to the U.S. government by 2021. The company also recently announced that it has pre-sold 60 million doses of its vaccine to the UK. These pre-approval sales would have been considered unusual pre-pandemic. Today, it's reasonable that governments are stockpiling potential treatments, because they want to curb new cases and fully reopen struggling economies as soon as possible.

Novavax received $1.6 billion up-front from the U.S. government's bulk order. That number helps us estimate the price of a dose of NVX-CoV2373. If we divide $1.6 billion by 100 million, we get a value of $16 per dose.

Investors may or may not choose to multiply that $16 by 2.75 billion. That's the current measure of Novavax's manufacturing capacity. Of course, preparing to manufacture 2.75 billion doses does not guarantee that there will be subsequent demand for 2.75 billion doses. It will be important to invest in vaccine companies that can strike the right balance between supply and demand for its treatment. A cost of $16 per dose is comparable to influenza vaccine prices in the private market, which run between $16 and $25. Other vaccines that are widely administered, however, are much more expensive. The pediatric Measles, Mumps, and Rubella (MMR) vaccine, for example, costs over $200 per dose. If Novavax hopes to charge more than $16 in the future, the demand for the vaccine has to be present in order to justify the higher price tag.