Associative neural network (ASNN) represents a combination of an ensemble of feed-forward neural networks and the k-nearest neighbor technique. This method uses the correlation between ensemble responses as a measure of distance amid the analyzed cases for the nearest neighbor technique. This provides an improved prediction by the bias correction of the neural network ensemble. An associative neural network has a memory that can coincide with the training set. If new data becomes available, the network further improves its predictive ability and provides a reasonable approximation of the unknown function without a need to retrain the neural network ensemble. This feature of the method dramatically improves its predictive ability over traditional neural networks and k-nearest neighbor techniques, as demonstrated using several artificial data sets and a program to predict lipophilicity of chemical compounds. Another important feature of ASNN is the possibility to interpret neural network results by analysis of correlations between data cases in the space of models. It is shown that analysis of such correlations makes it possible to provide "property-targeted" clustering of data. The possible applications and importance of ASNN in drug design and medicinal and combinatorial chemistry are discussed. The method is available on-line at http://www.vcclab.org/lab/asnn.