There is still a profit incentive to have something on the market, the disincentive is only if the value difference between the small market and bigger market is greater than the value of having something on the market vs nothing. And with the smaller market items they tend to be higher profit because they may be the only option available for that small market.
Plus there is uncertainty on whether the bigger market drug will make it through trials.
This is a potential distortion that will happen sometimes, or heck there’s a distortion where maybe negotiated prices might make the returns for some drugs not good enough to attempt.
But the alternative is higher prices on all the negotiated drugs, with impacts like people dying of diseases we have treatments for because they can’t afford it, and medical bankruptcies. We have elected leaders to decide between trade offs like these, and I think they decided rightly in favor of lower costs for everyone with the potential impact of some new small market drugs being delayed.