Blue Heron

I live in an older home. One of the bathtubs has no shower hear and I plan on installing one. Currently there is a ceramic tile surround that only covers the wall for about 30 in above the top of the tub. Above that there is dry wall. The dry wall is covered with something that kind of looks like fiberglass. It's definitely not vinyl. I am concerned about the wall above the tile. If I install a shower head, is it necessary to extend the tile or to remove it and install a surround? If the dry wall is covered with vinyl or fiberglass and I calk it well at the top of the tiile, do I need to worry about water damaging the dry wall?