The company's shares rose 3.2 percent to $2.57 in post-market trading.
Aveo also said Chief Operating Officer Elan Ezickson has resigned and would leave at the end of July. His responsibilities will be handled by Chief Commercial Officer Michael Bailey, who is also slated to take up a new role as chief business officer from August.
The company said it estimates the restructuring would extend its cash for at least two years, while realizing cost reductions of about $190 million.
Aveo, which had $192 million in cash, cash equivalents and marketable securities at the end of March, said it expects to finish the year with about $115 million in cash.
The company's decision comes after an advisory panel to the U.S. Food and Drug Administration decided last month that an additional trial would be needed before the drug, tivozanib, could be approved for treating renal cell carcinoma.
Kidney cancer patients who took tivozanib during clinical studies did not survive longer compared with patients on a rival drug Nexavar made by Bayer AG and Onyx Pharmaceuticals.
Tivozanib will also not be introduced in Europe for kidney cancer, after Aveo's marketing partner Astellas Pharma Inc late last month said it would not file for approval in that region. It is unclear whether Astellas will file for approval of the drug to treat breast and colon cancer in Europe.
Cutting costs would also help Aveo advance other products in its portfolio, which includes one drug for non-small cell lung cancer and one to treat solid tumors.
Aveo's stock traded near $8.27 in the days leading up to the advisory panel decision but is since down almost 70 percent to its Tuesday close of $2.49.
(Reporting by Zeba Siddiqui in Bangalore; Editing by Sriraj Kalluvila)