How to repair this shower/bathroom wall for bathroom remodel.
A floor drain is no problem in a bathroom, in fact that's a bonus! Just don't let it dry up.

As for where to start, here is a general guideline:


Tear out all the drywall and to expose any rotten areas.
Replace rotten studs, one at a time (full-length, don't patch). You don't won't to remove a whole wall at once, it may be load-bearing. Put in temporary studs for any iffy areas.
Fix the plumbing.
Choose your shower-surround (tile, fibreglass, etc...) and finish accordingly.


Also, whichever product you choose for waterproofing your shower will usually have their own specifications on how to waterproof on their websites. For example: Kerdi and Nobleseal. These two companies also have very helpful technical support departments and local sales reps.

An example of an "iffy area": If there are multiple studs all really rotten next to eachother and you are taking out one to replace it, the remaining load of the floor/roof over your head is now on all those rotten studs... That is an iffy situation, in my opinion.