She may have dropped the staff behind the stairs or behind the divider wall, where it could be hard to see. Try moving you mouse around those areas slowly, and / or hit the alt key. A couple people have had the staff drop into the wall, where Telekinesis can come in handy to retrieve it.
Also, check your weapon inventory. If you were picking up loot and the staff was not identified you may already have it. One person mentioned finding the staff in the chest in that room.
If you can not find it, and don't have a recent save that you could reload to defeat Josephine again, the staff can be replaced.
Lost Items - guide and directory of inventory files
