Here's a couple of questions.

Was your friend next to you? If so, Pickit could have gotten it before it hit the ground, if he has it set to pick up items in town.

Do you use maphack? If so, the item may have been hidden with a weird setting, but likely not.

Other than that, only thing I could think of is that for some reason, the item may have tripped 1.10's item deletion code.

Unfortunately, it's likely gone.