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Is VSV-G (which is used to pseudotype viral particles) toxic to cells?

Yes VSV-G is toxic to cells and can induce cell fusion. When we use HEK293T cells to generate virus, cells eventually die and VSV-G toxicity is one of the contributors. However, we harvest the virus and discard the cells before this happens. There is also some toxic effect on the target cells as well, though it is generally transient and the cells will recover.