German Shepherd puppies do go through a coat change as they mature - but it doesn't really fall out so much as it just changes in texture (as well as color as the GD puppy ages).
When your German Shepherd puppy gets to be around 3 months of age or so if you watch you'll eventually notice that the hair on the back, it usually starts in about one line or so about 1/2 wide and a few inches long, will change in texture - it almost looks shiny compared to the regular puppy coat. That new "shiny" patch is the adult coat coming in.
It may be that your friend has gotten a GSD puppy that is coated, meaning that it is a long coated or long haired German Shepherd.
Read more about the long coated, AKA coated, German Shepherd, here:
